Displaying items by tag: China

(Washington)

The markets had a scintillating day yesterday. The Dow surged almost 400 points. Why? The reason was simple—the market stopped worrying so much about a US trade war with China. The two countries are planning further high level talks on trade and that alleviated the market’s fears. Barron’s proclaimed that “This is what happens when the market’s not worried about trade”, obviously referring to the strength of the economy and earnings. The market was also more optimistic on Turkey.

FINSUM: There does seem to be a lot of upside that has been stifled by geopolitical worries. Perhaps there is a nice run to be had if the US and China can come to an agreement.

(Istanbul)

Most sources, including FINSUM, have been concluding that the emerging markets flare up centered on Turkey, would not develop into a correction or financial crisis for developed markets. Today that position is looking weaker, as stocks fell sharply across the world yesterday, and commodity markets got routed. Emerging market stock indices have fallen back into a bear market. While EMs fell big, global markets saw share plunges exacerbated by a dismal earnings report for one of China’s big tech companies, which then seeped into tech shares globally.

FINSUM: The narrative here is that Turkey sparked a big selloff and now fears over China will continue to drag EMs down. This could be the start of a global recession, but perhaps it will not be accompanied by huge losses in developed markets.

(Istanbul)

Emerging markets have had a rough year, with many major indexes, including in China and Brazil being in or near bear markets. This has led to a great deal of anxiety over the direction of assets, both stocks and bonds, in EM nations. Well, July may be the start of a new phase, at least according to Goldman Sachs. The bank says the emerging markets have hit their bottom and are now poised for a rally. Goldman reminds investors that big asset price moves in EMs are not uncommon, and that this year’s losses are quite ordinary.

FINSUM: The big question here is whether EM equities or credit are a better bet at the moment. Looking historically, credit seems to have a better risk/reward proposition when getting in early in a rally.

(New York)

The Wall Street Journal has put out an article painting an interesting, and perhaps realistic, view of how the trade war might play out. Their argument is essentially that the market itself will stop any trade war from becoming too serious. The WSJ says it best, “If the Trump trade war starts to squeeze economic growth, markets will react badly. When this happens, the impatient American president will have no choice but to declare victory, call off the war, and limit the damage”.

FINSUM: We tend to think this view is probably correct. That said, these kind of tariff wars can have unintended consequences that could make the damage more extensive and permanent than it is currently easy to foresee.

(Washington)

Anyone hoping the current trade war might have stalled will be sorely mistaken today. While Trump says he plans to to impose an additional $200 bn of tariffs on China in September, he has just said he is ready to go to a full $500 bn of tariffs on Chinese imports. When asked if he thought his plans would cause the stock markets to drop, Trump responded “Well, if it does, it does. Look, I'm not doing this for politics. I'm doing this to do this right thing for our country”.

FINSUM: We think the US does currently get a raw deal in a lot of foreign trade, especially with China. However, the manner in which this “negotiation” is proceeding does seem to be unnecessarily disruptive.