Washington Insider: China Trends and Global Markets

The Trump Administration seems deeply dug in against China’s global investment and trade policies, but a relatively new development is being reported fairly deeply by the urban media, Bloomberg says. It notes that after Chinese manufacturing output fell into contraction territory for the first time since 2017, U.S. and European stock performance reflected global growth concerns. March contracts on the S&P 500 Index fell as much as 2.3% after a closely watched gauge of Chinese manufacturing hit recent lows. The Dow Jones Industrial Average reacted similarly, Bloomberg reported. The Stoxx Europe 600 index followed 1% lower, led down by sectors sensitive to global growth such as basic resources and autos. Banks and insurers were among the laggards. Europe’s Purchasing Managers’ Index readings showed weakness, with Italy contracting while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading was the lowest in almost two years. The Caixin Media and IHS Markit China’s December manufacturing PMI fell to 49.7 from 50.2 in November, below the 50 threshold for the first time since 2017. That follows the official gauge, which fell into the same zone for the first time since July 2016 on Monday. Adding to global growth concerns, Singapore’s export-reliant economy grew an annualized 1.6% in the three months through December from the third quarter, easing from a revised 3.5% gain previously, according to an advance estimate from the Ministry of Trade and Industry Wednesday. The median forecast in a Bloomberg survey of economists was for a 3.6% expansion. “The disappointment that came through in December has transferred into January as well,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte. While there was some small development in uncertain Washington politics, it’s a reminder of the U.S.-China trade tensions and “brings back to the surface worries on growth,” she said. A fourth quarter sell-off in American equities sent the benchmark to the brink of a bear market late last year as fears of a recession crept up amid intensified U.S.-China trade tensions and a fourth rate hike by the Federal Reserve. The S&P 500 Index closed out 2018 with a 6.2% decline, finishing just above 2,500 and ending its worst year since the 2008 financial crisis amid worries the global economy will weaken in 2019. FedEx Corp. last month slashed its profit forecast just three months after raising it and pared its international freight capacity amid a slowdown in global trade in recent months, with leading indicators pointing to an ongoing deceleration in the near term. Caterpillar Inc., a bellwether of global growth, was punished by investors in October after repeating its warnings of rising costs due to higher steel prices and U.S. tariffs. On Wednesday, U.S. stock futures rose as much as 0.6 percent after President Trump invited the top congressional leaders from both parties to a White House briefing on border security and suggested the possibility of “making a deal” to end the government shutdown. It’s the first sign of a possible opening for negotiations to break the stalemate over funding for the border wall, Bloomberg said. For 2019, it’s important to anchor investments to where an economy is heading as market sentiment can change very quickly, said Jun Bei Liu, a Sydney-based portfolio manager at Tribeca Investment Partners. Hence the reversal in stock futures is more a lack of confidence as the U.S. economy is still one of the better performers among global peers, she said. “For the first day of the new year, it would be great to start the year with a green run,” Liu said by phone. “Unfortunately, it will probably start in the red.” It is well known that trends in major markets, including China, affect the global economy — but there is wide disagreement regarding how closely those links are interwoven. Increasingly, analysts seem to be suggesting that they are strong and quite sensitive — especially to major government interventions like large tariffs. Recent media reports suggest that the administration is maintaining its ambitions for quick and meaningful concessions from China on a number of trade-related issues. At the same time, its experience with ag trade suggests the need for caution and better understanding of “do no harm” approaches to markets where access has been developed carefully over time — a trade policy approach producers should watch closely as it is negotiated, Washington Insider believes.