The US-China trade talks rattle on and may or may not result in some definitive decision or announcement before Dec. 15, which is the deadline on the tariffs imposed on China goods heading into the US. The markets this week seem to think there is a deal about to be done, and it may be true, as it has been true for most of the past year, again and again.
In terms of rubber hitting roads, defaults have been a big topic this week. The number of companies defaulting on loans and on bond payments is up strongly, and a couple of biggish names were involved this week, including the Tunghsu Group and Peking University Founder Group. Some analysts see this as a healthy sign that China is finally no longer taking the position that nothing is allowed to fail. And while that could be seen as a positive, there is a risk of the market being spooked with expanded consequences. Generally, we believe the system has no choice but to make sure defaults that occur are exceptions, and for the basic principle that nothing is allowed to fail to be defended vigorously. There is a big wedge behind the thin edge.
Meanwhile, the Chinese economy is still slowing, it is just the amount of how fast and with what consequences that remains in question. The pundit consensus seems to be that GDP growth this year is going to be announced at 6.2 percent, with next year somewhere between 5.5 and 6? We’ll see what they declare. It’s as much a political decision as anything else.
On the positive side of the scale, manufacturing activity and growth in services business were reported to be sharply up in November.
The tea leaves remain cloudy.
Enjoy the weekend and stay warm.