Displaying items by tag: China

(Beijing)

All our readers will be aware of the intensifying trade war between the US and China. And while the US seems to have a strong position on trade (with less to lose than its partners), that is not the whole picture. The reality is that the US makes up much of what it loses on trade through massive overseas investment Dollars that flow into US assets. While much of the public’s awareness of this centers on Treasury bonds, one other big area of foreign participation is in MBS, or mortgage bonds. What is much less known is that more recently, foreign buyers, including China, have been much bigger consumers of US mortgage agency bonds (e.g. Fannie and Freddie).

FINSUM: China has the power to simply turn off the spigot on the mortgage market, which could lead to a surge in interest rates and a resulting collapse in prices. That would put US politicians in more hot water than tariffs ever could.

(Beijing)

With the US-led tariffs battle in full swing, Americans tend to focus on how such tariffs are affecting our own country. However, to understand how things may play out, we need to see what is happening on the other side. While US markets have taken a shallow hit from the potential trade war, Chinese shares are plummeting, and a very near to a bear market. Both the country’s Shanghai and Shenzhen indexes are at almost a 19% loss from their peak in January, just a hair off the 20% loss that qualifies as a bear market. According to one Chinese securities analyst, “It’s mainly the trade war that has created such panic in the market because the latest developments have surpassed the expectations of many people in China”.

FINSUM: We wonder how much this kind of market pressure will compel the Chinese government to give in to some of the US’ demands? The counter point to that view is that since the country is not a democracy, the government doesn’t really have to worry all that much if people are upset. That is a very blunt view of the situation, but one we think is fundamentally true.

(New York)

It was a golden period, but it seems it only lasted less than a year. 2017 was a great year for the global economy. For the first time since the Crisis, the whole world seemed to be growing in unison. Even Europe, long in the doldrums after its sovereign debt crisis, had blossomed. But just as that growth was finally harmonizing, it is changing again. US growth still looks solid, but the rest of the world, especially Europe, is beginning to stagnate. China, too, leaks weaker, and both the ECB and Chinese central bank have held off on any rate rises.

FINSUM: We wonder if a global recession is coming. The US still looks strong, but then again we are coming off a very strong late stage tax cut.

(Washington)

A week ago it didn’t seem like it was going to happen, but nonetheless it is. Trump plans to move ahead with imposing $50 bn worth of tariffs on China starting as soon as tomorrow. The move is expected to bring heavy retaliation from Beijing. Several days ago, China made a conciliatory offer to boost purchases of US goods by tens of billions of Dollars.

FINSUM: We think the US’ approach to link the trade situation to working with China on North Korea is not a very smart angle, as nuclear security and agricultural goods don’t sit comfortably.

(Washington)

President Trump seems to have emerged from the summit with North Korea with a very high degree of confidence that the situation there has been handled. Trump put in writing yesterday that “there is no longer a nuclear threat of North Korea”. Interestingly, North Korean state media also reported the meeting as a major success, but did not mention denuclearization at all. Trump did backtrack a bit, saying “I may be wrong. I mean, I may stand before you in six months and say ‘Hey, I was wrong’. I don’t know that I’ll ever admit that, but I’ll find some kind of an excuse”.

FINSUM: We think this summit was a success and that Kim has played the whole situation very sharply. Our only concern is the lack of detail about how North Korea will actually go about denuclearizing.