Displaying items by tag: China

(New York)

There has been a lot of speculation lately about the extent to which the current growing trade war may affect the economy and markets. Some expect a benign effect on both. Well, Bloomberg has run a piece arguing that the trade war may lead to a Chinese debt crisis, which could in turn lead to a global financial crisis. The impact of the tariffs on the Chinese economy could be serious. China is already seeing a very high level of defaults, and with the extra burden of tariffs coupled with a weaker Yuan, it could create credit chaos for Beijing. Bloomberg put it this way, saying “That the massive burden of debt will drag the economy into recession is as obvious as the empty towers that rise on every landscape … But on any metric, the amount of new lending each year grows faster than the economy, and the interest newly owed exceeds the incremental rise in GDP. In other words, the whole economy is a Ponzi scheme”.

FINSUM: It is hard to imagine a more forceful comment than that last one from Bloomberg. We don’t know if we would go so far, but given how indebted the Chinese economy is, and their reliance on exports, tariffs could spark a meltdown that then spreads overseas.

(Houston)

The commodities market is taking a wallop across the board today. It seemed to start earlier this week with oil dropping on fears over weakening Chinese GDP. Weaker growth would mean less demand for oil. Now, those fears have spread across most of the commodities market, with metals currently selling off strongly on the same fears. The renewed selling follows losses nearing 20% in industrial metals over the last month.

FINSUM: Remember that commodities markets are often a leading recession indicator, so this data does not bode well. Though in this case, it seems to be GDP data leading commodities, which is a bit back-to-front.

(Chicago)

It was only a matter of time until US industry started to feel the pain of the current American-led trade war. Now it is happening. US manufacturers are reporting rising costs and difficulties in sourcing ahead of the tariff deadline. These companies say that the metal tariffs, combined with the threat of falling export business, all caused by tariffs, is threatening to make them stop hiring or making new investments. “We had a good year last year, and we’re in the middle of a good year this year. But we are very concerned about the tariffs”, says an Ohio manufacturer of excavation equipment.

FINSUM:That penultimate sentence is the most scary of all—that manufacturers may stop hiring and investing. That would be a leading indicator of a coming recession, especially if it has a trickle down effect to other sectors.

(New York)

Only those watching the bond market closely would have noticed it, but a huge Treasury meltdown may have started yesterday. One month US Treasury bills saw yields jump an eye-popping 10 basis points in an instant. The incident followed one of the worst Treasury Bill auctions in a decade, where there was little demand from investors. The two possible answers for the terrible auction are the unusual date (it was moved because of the Fourth of July), or that China has indeed slowed or cut off its purchases of US debt.

FINSUM: The US better hope this bad auction was just a fluke of the calendar. That view is supported by the fact that longer-term Treasury auctions at the same time were much closer to normal.

(Washington)

President Trump has been leading a tumultuous trade war with the US’ largest trading partners. So far his efforts have put tariffs on many different goods, but with metals being the single most notable materials. However, a new interview with the President suggests that the metal tariffs were just an opening act to a much bigger area: autos. In an interview with Fox News yesterday, Trump said “You know, the cars are the big one … We can talk steel, we talk everything. The big thing is cars”. Trump is reportedly planning a 20% tariff on all imported cars as part of a national security measure.

FINSUM: We believe this would be a major line in the sand to the US’ trading partners. Both our Nafta partners and the EU, and maybe Japan, would be furious about this, but it is a major source of leverage for the US.