China slowdown may Trump trade fears

Equity markets are acting as if they are taking advantage of the weather for a visit to the fairground, as indexes around the globe appear to be on a rollercoaster ride. European equities regained half of Monday’s losses on Wednesday and Wall Street was in line for its biggest rise in three weeks, at least at the start of the day. By the end the S&P 500 had failed to hold 2700, falling almost 1%. Equity markets overnight on Wednesday in Asia were a mixed bag, as Chinese equities continue to fall.

The Bank of England released its half-yearly stability report on Wednesday. It discussed the risks we all know, rising Italian bond yields, trade tensions and the impact a rising dollar has on emerging market debt. There is a myriad of interesting charts released with the report, illustrating the state of various regions of the global economy. One of which highlighted the slowdown in credit growth and shadow banking within the Chinese economy.

The report reminds people that economies that have undergone a sharp credit boom, Japan as an example, have often led to a crisis at some stage. Chinese equities have fallen sharply this year and as much as trade war concerns have hit equity sentiment, it may become a side story if concerns develop of a materially slowing Chinese economy. Overnight Donald Trump did make some conciliatory overtures towards Chinese investment restrictions, however, this news had the little positive impact on the Chinese market. Chinese economic concerns could continue even if fears of a trade war recede.

Recent economic data from the region, including retail sales and fixed asset investment growth both failed to meet expectations. The end of the week sees the release of China’s Purchasing Manager Survey’s, forecasts are for the readings to remain close to the previous months. This data is always closely watched and any drop in either services or manufacturing index reading will add to the China slowdown concerns.  On the other hand, should the data hold up, there may be something of a relief rally for Chinese equity prices.

The other newsworthy event of the week is the euro area get together. It will probably use up a lot of print space, with the attempt of providing a united front however as often is the case with these meetings nothing concrete is likely to come of it. Brexit is likely to come into the debate at some stage, as the chorus of UK press is starting to push Theresa May into taking a tougher stance with Europe. This nicely nicely, softly-softly approach is not working and there are growing concerns that all Theresa May will have achieved is leaving ourselves in the customs union, bound by the same trade rules but have no ability to influence any policy decisions. Not sure even the remainders will want for that. 

So where is the good news, just one, whatever may happen to England in the World Cup at least we can’t lose to Germany on penalties?

 

 

 

 

 

Posted on June 28, 2018 .