There was a sort of calm in China over this past week. No big announcements, a bunch of little stuff that tended towards the negative, but we’re waiting for certain issues to be clarified.
Top of the list is the US-China tariff war – is it going to bite and if so with what consequences? There was talk of revived talks, but the last thing Trump said on the subject was that there was no pressure to strike a China deal. The impact of tariffs is only going to become apparent in terms of trade and other economic data in the fourth quarter and a lot of what we have seen to date could well be related to stockpiling and people pushing through orders ahead of the tariff booms descending.
Another topic we have been watching closely is swine fever. If the outbreaks reported in a number of locations across China should spread, it could potentially have a severe impact on food supplies and also inflation. The best answer would be vegetarianism, but we are not optimistic.
Then there were downgrades during the week by S&P and Moody’s of various local government-related financial entities. Given that all government-related everythings are essentially backed by the Chinese Communist Party, that was worth pondering, and the comments that emerged indicated the downgrades were related not so much to the risks of the entities themselves going under as to the willingness of the party-state to step in if necessary. HNA, the scandal-ridden investment conglomerate closely linked into Beijing, also defaulted on a large loan.
Meanwhile, the Shanghai stock market shifted down a notch with Those in Command apparently deciding to defend 2,650 as opposed to the 2,700 line of recent weeks. What will be the defense line for next week, one wonders? Reality can be offset but it has a way of working its way back into view in the end.
Enjoy the weekend.
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