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China Growth Nowhere Near Official Estimates, Says Morningstar

China’s third quarter growth rate has fallen to 6%, says Beijing. No it hasn’t. It’s more like 3%, says Morningstar’s China economics team led by Preston Caldwell in a report dated October 29.

While Donald Trump and his economic advisor Larry Kudlow try to convince Wall Street today that trade talks are going well and the two sides will still ink their so-called Phase 1 mini-deal this year, investors are noticing something awry in China. Companies are sourcing product elsewhere in modest, yet increasing numbers. China’s usual high fixed asset investment numbers are falling. Economic policy makers could be afraid of debt burdens and don’t want to overstimulate the economy. Growth is slowing. Industrial production is contracting.

To make matters worse, the full brunt of tariffs hasn’t quite been felt fully by China. The average incremental tariff rate increased to about 12% in the third quarter from about 9% in the second quarter. If Phase 1 talks result in no signed agreement anytime soon, Morningstar predicts it would send the average U.S. tariff rate on Chinese imports to over 20% by the first quarter of 2020.

The dollar/yuan exchange rate has helped offset some of the tariff costs. The yuan has weakened by about 5% since the end of the first quarter. For exporters, China is still cheap.

Today In: Money

The bulk of the third quarter decline was due to the consumer durables index component of the Morningstar proxy for measuring GDP. It contracted 4.1% from 3.8% growth in the second quarter. Morningstar analysts believe there is a chance that the locals may be temporarily pulling back on spending in anticipation for new government subsidies. Still, slowing durables consumption matches the trend in place since early 2017. And stimulus has been trickling in since.

Two of the other Morningstar proxy components that brought them to the 3% figure also saw a marked decline in the third quarter. Their power proxy index is now in line with the other index components after being a positive growth outlier for about two years.

But it appears the real drag that brought Morningstar’s number down to 3% is industrial production. Industrial profits are down 5.3% year over year versus August’s contraction of 2%.

“Neither a surprise nor a market mover,” says Brendan Ahern, CIO of KraneShares in New York. “U.S. tariffs are still exacting their toll on export-focused manufacturers.”

The industrial sector slowdown might also be understated, especially if China is over-estimating inflation, Morningstar report authors warned.

Meanwhile, China’s dependence on credit to sustain economic growth has so far thwarted Xi Jinping’s attempts to convince the provincial governments to deleverage. Debt growth remains above nominal GDP growth rates.

“We’re not surprised that China’s economy has failed to recover, given that credit growth stalled after a slight rebound in the first quarter,” Morningstar analysts wrote.

China-bound investors will be watching for solid Singles Day sales on November 11. If they disappoint, emerging market funds who are mostly overweight China could finally start shifting positions.

China’s A-shares have been outperforming the MSCI Emerging Markets Index all year. Only Russia, as measured by the VanEck Russia (RSX) exchange traded fund, is beating the CSI-300, an index tracking mainland China equities listed on Shanghai and Shenzhen exchanges.

Official consumer spending showed a mixed picture in the third quarter. Nominal retail sales grew 7.8% year over year in September versus a high of 9.8% growth back in June. Real retail sales fell only 30 basis points from August.

China’s National Bureau of Statistics’ household survey data suggests that most of the spending went towards education, entertainment, and “miscellaneous services.”

Morningstar said that their own sampling of alternative consumer sales data such as box office revenue, telecom revenue, and air passenger volume suggests tepid consumer services growth. China’s number crunchers are more upbeat on that and Morningstar’s team is not, which brings their forecast so much lower than official figures.

E-commerce giant Alibaba – the company behind Singles Day – announced this week that Taylor Swift will be performing at the Mercedes Benz Arena in Shanghai where the shopping spree will have their telethon-like tally of sales. If Swift can hype Singles Day shoppers to spend, the China consumer bull narrative will remain in tact. If she fails, and Singles Day ends up being mediocre, all bets are on for more stimulus in the months ahead out of Beijing.

Follow me on Twitter or LinkedIn.

Spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: China Growth Nowhere Near Official Estimates, Says Morningstar

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China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago — the lowest in at least 27-1/2 years, according to Reuters records. CNBC’s Eunice Yoon reports.

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With Currency Manipulator Label, China Trade War Moves Into Unchartered Waters

Last week’s announcement by Trump of more tariffs coming for everything shipped to the U.S. from China and Monday’s move by Beijing to allow for a weaker yuan begins Act III in the trade war.

Here’s the plot twist:

Treasury just hit China with currency manipulator status after market hours on Monday. It came at a time when nothing was trading. Investors were stuck in the Twilight Zone. Tuesday morning is going to be a madhouse rush for “sell China” orders by the algos. Wait for it.

As one hedge fund manager told me, “we’ve just thrown gasoline on the fire.”

Currency manipulator status gives Beijing less wiggle room because if they weaken the yuan to make up for tariffs, tariffs will likely go up to compensate.

We are in unchartered waters. At risk is what amounts to sanctions on key U.S. commodities like soybeans and pork by the Chinese government, and political risk involving Hong Kong as civil unrest continues there, putting its special trade status in the crosshairs of a China-bashing American Congress.

President Trump told reporters last week that he figured China would depreciate the yuan in response to his plan to hike tariffs to 10% on the remaining balance of China imports by Sept 1.

In isolation, a 10% tariff on $300 billion in combination with a 10% yuan depreciation would be functionally equivalent to Chinese households writing a check for $30 billion to the U.S. Treasury. “Trump may not have gotten Mexico to pay for its border wall, but he is getting China to pay (the government) for its tariff wall,” says China bear Brian McCarthy, chief strategist for Macrolens, a big picture investment research firm.

Currency manipulator status makes the trade war worse for China.

Meaningful and enduring negative feedback about China will lead to extreme financial market volatility in Asia, especially in China’s mainland equity market where a gambler’s approach to trading by the dominant retailer investor class there might cash out. And why not? China’s mainland stock indexes are up over 20% this year and this may be seen as the time to take money off the table.

Short sellers shouldn’t discount the possibility of the People’s Bank of China pumping money into the A-shares this week.

It’s too early to start expecting widespread defaults on China’s corporate dollar-denominated debt (which some firms estimate to be around $800 billion). A default would deal a harsh blow to foreign investors who have been big buyers of Chinese bonds as that market opens up and joins the major indexes.

The transmission mechanism from yuan devaluation to global securities is expressed more obviously through Europe and other emerging markets, especially those heavily linked to China — such as South Korea and Brazil. Both currencies had an ugly looking chart on Monday.

Meanwhile, the Fed can potentially isolate the U.S. economy from any economic fallout by cutting rates. Though this opens up a whole other can of worms, namely rates sinking to zero in the event of a recession.

The yuan settled at 7.05 to the dollar today after the central bank set the daily rate at just over 6.9 to the dollar. The currency is allowed to trade within 4% of that daily fixed rate. The yuan is now at its weakest level in over 10 years.

“These moves represent a significant escalation in the trade war,” says Joseph Brusuelas, chief economist for RSM, a global financial advisory firm.

“There is a specific logic and order of operations with respect to the tit-for tat retaliation likely to play out that will not result in longer-term inflation, but will instead create conditions for deflation and negative nominal interest rates along the U.S. maturity spectrum if a longer-term trade compromise cannot be reached,” he says.

Follow me on Twitter or LinkedIn.

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: With Currency Manipulator Label, China Trade War Moves Into Unchartered Waters

Progress Ahead? Hopes For China Trade Progress Rise, Putting Markets On Solid Footing

A long weekend looms, but before that, there’s a lot to digest. Perhaps topping the list is the latest scuttlebutt around trade with China (see more below). Netflix earnings also rank high, with shares down 3% in pre-market trading after a Q4 revenue miss. Automaker Tesla is also in the news after announcing plans to shrink its workforce as it tries to lower product prices and improve its margins………

Source: Progress Ahead? Hopes For China Trade Progress Rise, Putting Markets On Solid Footing

US Stocks Rise on Positive Trade Talks with China; Bitcoin Cautious

The US stocks opened Wednesday on a higher note as President Donald Trump signaled positive outcomes of their trade talks with China. The Dow Jones Industrial Average jumped 0.5 percent to 23902 points after adding 115 points while the S&P 500 gained 0.3 percent. The Nasdaq Composite Index surged by 43.2 – or 0.6 percent – to 6941. The jump marked the market’s fourth consecutive upside session – the first time since Sep 14 – correcting 9% from its Dec 24 lows. However, the market remained 11% down from its 2017 peak.

Source: US Stocks Rise on Positive Trade Talks with China; Bitcoin Cautious

Bearish on Tether? Bitfinex Adds USDT Margin Trading

Crypto trading platform Bitfinex has announced the opening of a margin trading service for the USDT/USD trading pair. According to the platform, the aim of the new service is to improve its stablecoin offering so as….

Source: Bearish on Tether? Bitfinex Adds USDT Margin Trading

Option Trading Lessons From The Man Who Sold His Trading System To JPMorgan – Shishir Asthana

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Many envy a person who takes five holidays a year, but few would put in laborious efforts needed to ensure well-timed and worry-free breaks. Quantitative derivatives trader Subhadip Nandy is one such person to be jealous of. The Kolkata-based options trader quit a comfortable job in Life Insurance Corporation to dabble in the markets in the 90s. At the turn of the century he doesn’t have to look back, for the markets give him relief — mentally and monetarily……

Read more: https://www.moneycontrol.com/news/business/markets/option-trading-lessons-from-the-man-who-sold-his-trading-system-to-jpmorgan-3093941.html

 

 

 

 

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Simple SAR Indicator – An Accurate Indicator Delivers Winning Trades in 5 Minutes Without Any Technical Analysis

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With all of the different markets to trade it is to no surprise that just one strategy alone can be hard to make money with consistently. The single strategy approach may win from time to time but ultimately it may break down and you are left to go back to the drawing board. For that reason alone, we developed a combination of different settings you could test with this indicator in different market conditions and time frames so that you can tweak you exit and entry approach. So really this is a the same strategy only it is a modified version for that specific market…….

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China Begins To Blink In The Trade War, And That’s Good For Its Citizens – Panos Mourdoukoutas

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America’s tariffs have begun to have an impact on China’s trade policies. Last Sunday, Beijing announced that it will lower tariffs on 1585 products. The policy will take effect on November 1, and it will bring overall tariffs level down to 7.5% from 9.8% last year. The goods covered include textile products, metals, minerals, machinery and electrical equipment, most of which have been the target of US tariffs. The new tariff reduction came a few months after China cut tariffs on most imported medicines, vehicles and auto parts……..

Read more: https://www.forbes.com/sites/panosmourdoukoutas/2018/10/03/china-begins-to-blink-in-the-trade-war-and-thats-good-for-its-citizens/#494199615363

 

 

Your kindly Donations would be so effective in order to fulfill our future research and endeavors – Thank you

 

 

How Chinese Products Went From Cheap & Cheerful To Weapons In US Trade War

Tensions are escalating between China and the US over trade. The Chinese government has announced retaliatory measures on a range of American products including cars and some American agriculture products after the US listed 1,333 Chinese products to be hit by punitive tariffs of 25%.

Yet a trade war does not make economic sense for either side. Bilateral trade between the US and China was worth about US$711 billion in 2017 and Boeing’s single deal with China signed during Donald Trump’s visit to Beijing in 2016 was worth about US$37 billion alone.

The jobs and livelihoods at risk are huge. So why is there no particular desire, especially from Trump, to ease the tension and find a new solution?

There has been much talk about the US trade deficit with China and allegations that China steals US intellectual property. But the answer could lie in US fears of the Chinese government’s “Made in China 2025” initiative and how it signals the growing threat of China as an economic rival. That the official US Trade Representative’s recent investigation into Chinese trade practices mentioned the Made in China 2025 initiative more than 100 times, suggests this is the case.

Image problems

Made in China 2025 was launched by the Chinese government in 2015 to upgrade the country’s manufacturing capabilities. It is a plan to transform what China produces from a low-cost, labour-intensive model to advanced and smart manufacturing. Certain key industries such as aerospace, robotics and high-tech medical equipment have been prioritised. The hope is that China will gradually match developed countries’ manufacturing capabilities and become industry leaders.

A lot of the products from these key industries, such as industrial robots, aviation and aerospace equipment, new energy and power supplies and advanced rail machinery were all included in the tariff target list published by the US Trade Representative. So it would seem that the current situation is not simply a trade issue aimed to reduce America’s trade deficit with China. Instead, it is likely targeted at the future competition China will pose.

Made in China 2.0. shutterstock.com

China’s Made in China 2025 strategy makes perfect sense in my field of research, which concerns where products are manufactured and how this effects their popularity in the global market place. A strong and positive image of a country can generate what economists call “halo effects” on its products. So, Germans have built good reputations for their cars and engineering, France and Italy for their wine and fashion, and the US for their innovative products.

This worldwide reputation brings with it prestige and higher price premiums. Although there is still debate around whether brand origin could be more important than where the product is produced (Apple, for example designs its products in the US but manufactures them in China), there is no doubt that “Made in China” suffers from an image problem.

Chinese products have long been associated with a cheap and cheerful perception that they are not good in terms of quality or ingenuity. The Chinese government has long been aware of this view and keen to change it.

At the turn of the 21st century, it set up a policy called “Going Out” to encourage leading Chinese firms to expand internationally, acquire new technology and the tools to innovate. The two big examples were IT firm Lenovo’s takeover of IBM’s personal computer division in 2005 and Geely automotive’s purchase of Volvo in 2010. Made in China 2025 serves the same purpose – to boost China’s technology and innovation capabilities and to improve the image of Chinese products.

Impressive growth

There is no doubt that China has come a long way since the 1990s. It has built 22,000km of advanced high speed rail network within the last decade, which is more than the rest of the world combined. It is also considered as the global leader in renewable energy and technology, patent filings, commercial drones, industrial robotics and e-commerce and mobile payments.

China is already a leader in some tech. shutterstock.com

Chinese telecommunications company Huawei typifies the transformation of Chinese products in recent years. Within the last decade, Huawei has surpassed Ericsson and Nokia to become the world’s biggest telecom equipment supplier and has just overtaken Apple as the world’s second largest smartphone maker, behind Samsung.

What’s more remarkable about these statistics is that Huawei has transformed itself from a cheap phone maker to an accepted premium brand that can compete with Apple and Samsung. Its latest releases the top of the range Huawei P20 Pro will retail for US$1,100 and its top end model Huawei Porsche Design Mate RS will sell for US$2,109 – even more than the iPhone X.

There is no doubt that some in the US are uncomfortable with China’s impressive growth and feel threatened by it. It suggests the current trade dispute is not just about imports and exports, but also an incumbent superpower feeling the threat of a growing challenger.

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