Trump's economy booms as China is on verge of bear market

Voya Investment Management head of asset allocation Barbara Reinhard says tariffs on motor vehicles will have a serious economic impact.

The losers in a potential global trade war are already apparent – and it’s not Wall Street. The US economy is powering ahead as Europe and Asia show signs of weakening.

Confirmation will come this week as the US Commerce Department releases data on durable goods (Thursday, NZ time), gross domestic product (Friday) and personal income and spending (Saturday).

While the outlook for eurozone economic growth remains uncertain after a weak start to the year, inflation is moving in the right direction for the European Central Bank.

After a jump to 1.9% in May from 1.2% in April, figures released by the European Union’s statistics agency are expected to record a further, small increase to 2% in June, or slightly above the central bank’s target.

US stocks recovered on Friday after posting their biggest one-week slide since March.

President Donald’s Trump’s determination to reduce US trade deficits is hurting investors in some industrial firms, agricultural companies and auto makers. Bellwether stock Caterpillar fell 6.7% for the week and Boeing lost 5.3% over five sessions.

The EU has imposed $US3 billion in tariffs on a selective list of US goods aimed to hurt Mr Trump politically, such as Harley Davidson motorcycles, bourbon and jeans,

This brought the response of a proposed 20% tariff on European cars. The EU imposes 10% tariffs on imported cars while the US tariff is 2.5%, though the US imposes a 25% tariff on light trucks versus Europe’s 10%.

Selloff in emerging markets
Meanwhile, investors withdrew the biggest weekly amount from emerging market equities, financials and investment-grade bond funds since 2016, Bank of America Merrill Lynch says.

“We’re starting to see some corporate impact to some of the rhetoric coming out of Washington,” Voya Investment Management head of asset allocation Barbara Reinhard says,

“Potentially targeting the auto sector has a far greater economic impact than anything that has been done so far.”

The Stoxx Europe 600 rose 1.1% on Friday but fell 1.1% for the week, weighed down by shares of European automakers.

In Asia, retaliation to US tariffs by China is having a knock-on effect on other economies that are export-intensive and linked to Chinese supply chains.

China’s Shanghai Composite fell 6% last week, compared with a 1.2% fall for Wall Street’s S&P 500.

While US equities have risen during the past three months as tit-for-tat tariff threats have continued, the MSCI Asia ex-Japan is down by over 5%.

China on verge of bear market
China’s Shanghai Composite Index is down by more than 19% from its January peak, hovering on the edge of bear market territory during intraday trading. A bear market is usually defined as a fall of 20% or more from a recent high.

Mr Trump has threatened a 10% additional $US200b tariff on Chinese goods apart from the initial $US50b that was a penalty for intellectual property violations and technology theft.

If China retaliates again, the US will add another $US200b of Chinese exports and double that again unless the Chinese relent.

On Wall Street, the Dow Jones Industrial Average broke an eight-day losing streak on Friday to rise 119.19 points, or 0.5%, to 24,580.89 but slid 509.59 points, or 2%, for the week.

The S&P 500 added 0.2% to 2754.88 and fell 0.9% for the week while the Nasdaq Composite edged down 0.3% to 7692.82 and lost 0.7%, for the week.

Stocks were boosted by energy shares in the wake of major oil producers to raise output quotas by about 6000,000 barrels a day to keep prices from rising too fast.

Shares in Chevron rose 2% and Exxon Mobil added 2.1%. The move came as a relief to investors, who had been expecting output to rise even further to one million barrels.

Oil prices jump
US crude futures for August delivery jumped 4.6% to $68.58 a barrel – its biggest one-day percentage gain since November 2016 and its highest level since May 24. Brent, the global benchmark, increased 3.4% to $US75.55.

The US Commerce Department’s third estimate for first-quarter gross domestic product (GDP) and consumer spending will show whether they were stronger than previously reported.

The 2.2% growth rate for GDP was revised lower from an initial estimate of 2.3% and a slowdown from the fourth quarter’s 2.9% growth rate. Economists in a Wall Street Journal survey expect the first-quarter GDP reading to remain at 2.2%.

Personal consumption expenditures increased a seasonally adjusted 0.6% in April from the previous month.

The new report will also provide insight into inflation. The US Federal Reserve’s preferred inflation gauge, the price index for personal consumption expenditures, was up 2% from a year earlier in April.

The Journal’s survey forecasts personal income rose 0.4% in May, while consumer spending was also up 0.4%.


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32 Comments & Questions

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One economy is based upon debt and spending, the other is built on savings, hard work and investment. Guess which one is the real bear economy?

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Yeah, but which do you think is which?

(Also, both are built on debt and spending. Savings are as destroyed by central banking & stimulunacy as by communism.)

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That may have been the case 50 odd years ago. But is the Chinese person of today the same hardly person they once were? Or have they gone a bit like us in recent years. You will see hordes of them everywhere when you go on holiday, and at every major hot spot around the world, all you do is see them spending money like there's no tomorrow. So I for one wonder if your once hardy race, may have changed somewhat in it's quest for a western lifestyle more like ours. No doubt bringing with it all the same social and economic problems we have as well. Edited

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While it is true that the Chinese people work hard and save hard, it is squandered by their government's inflationary policy, it's working hard and saving hard for nothing (other than other countries get cheaper goods so to speak).

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Western commentators have been predicting the demise of the China since 2000. If it's not one thing (real estate), it's another (banking system).

You know why China has been able to navigate its way through the rough times? It is because the China economy rides on a cushion of real savings and real production, and real hardworking people who are always prepared for hardship.

Not something we would ever expect Westerners, so addicted to the good life and to debt, to ever understand.

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One doesn't have to 'predict' the demise of China. Sooner or later the Chinese themselves will stuff it up. They always have, and they always will.

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Valid point but I think you will be interested to know that the Chinese go on holidays and spend lavishly with their savings - not borrowings. I have yet to meet a Chinese tourist here using debt to have a holiday here.

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China's debt problems are enormous, largely hidden in off-balance sheet municipal property based lending. It is the key reason why Xi has assumed his dictatorial powers, to try deflate property prices without a bubble burst

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The Chinese communists have engaged in trademark and copyright infringement along with outright patent abuse and intellectual property theft to gain their trading advantages.

The Made in China rip-off of Western products/designs (usually of inferior quality) is legendary. Let's not be naive about the cuddly, hard-working panda bear image you are peddling.

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OMG! You mean like the West rip-off of China products like paper, the printing press, gunpowder, porcelain, tea, medicine, noodles and above all else, extracting 'war' reparations when the Chinese rose up against the West for forcing the scourge of opium on the Chinese population?

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Yes but you must admit, you have to admire the way they've gone ahead and rebuilt the infrastructure of the country up, while we on the other hand can't get anything done until the endless meetings and professional objectors are out of the way with. They would probably have had this whole country rebuilt in 10 years, while we were still thinking about it.

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I think the Shanghai Composite Index (and now some of the emerging markets) are the only ones reflecting the reality of our grotesquely distorted economies today.

US has weak growth, it always has been, on top of an Everest of mis-priced debt build, and now partially obscured by the rise in oil prices ... this week's data will be interesting. But no matter what their markets, especially the FANGs, are in Harry Potter territory with the over-valuations.

This PIEDeposit man is still waiting for the Great Reset.

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It's amazing what a round of tax cuts will do. Meanwhile, over in New Zealand......

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just 2 more years.... (hopefully)

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Don't we tend to leave a party in for three terms before we kick them out?

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Yup, kick the can down the road and make future generations pay for it. Great, amazing, YUGE response to tax cuts.

"By 2028, America’s government debt burden could explode from this year’s $15.5 trillion to a staggering $33 trillion—more than 20% bigger than it would have been had Trump’s agenda not passed. At that point, interest payments would absorb more than $1 in $5 of federal revenue, crippling the government’s capacity to bolster the economy, and constraining the private sector too."

I can imagine the amount of absolutely pandemonious screaming conservatives here in NZ would be kicking up if our debt ballooned well over 100% of GDP and was set to cripple our entire economy! Debt accumulation is only bad when the Reds tick it up though, eh?

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Hi Moose
There are 5 countries who do not have any external debt:
Macau. British Virgin Islands. Brunei. Liechtenstein. Palau and maybe one other that survives on NZ hand-outs.
So who do all the other countries, the likes of USA, ("$15+ Trillion") and China, ("$28+ Trillion") owe this money to?
Their own Central Bank?
Mars?
And Moose? If ever these debts are all paid, would the living standards of homo sapien be raised?

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Yes but Moose the US debt has been building for a long time now but at the same time US taxpayers & companies have been royally screwed by multiple US administrations when it comes to tax rate and the huge complexity of their tax system.

In NZ I think we've got the tax rates almost perfect - although I think the middle class hasn't got a break here for years. Personally I'd remove the first tax bracket altogether, good for low and middle income. But no, this Tax Working Group is going to wreck it all guaranteed.

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The debt growth started an exponential rise under Obama, Trump was left dealing with the momentum of this.

The US economy also flatlined at less than 3% growth under Obama, who even started preaching that growth rates greater than 3% belonged to the past

Meanwhile since Trump's tax cuts and deregulations the growth rate is .... that's right, greater than 3%

The above is not to minimize the overall appalling debt situation, I'm not an across the board Trump aficionado, but I think his pattern disrupts are not all the doom/gloom/disaster scenarios universally painted by brain dead media headlines the world over.

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Disagree on one point, Bruce. Trump has exacerbated the debt climb, and as much as I love tax cuts, Trump's were irresponsible in the extreme, as to give tax cuts like that you have to cut government spending and he is spending more, plus the cuts were structured in such a way that they have basically resulted in corporate buybacks that have further created debt risk - I hate to think what level of US corporate bonds are sheer junk, although we'll find out soon enough as the FED is losing control of the ability to price debt which is slowly rising (the market will always correct back to reality, it just takes time with very complex systems). And then on top of all that he's now launched the trade war.

I love that Chump has turned political privilege on its head, not so much consciously, but just because his ego is bigger than a planet and frankly, he's just not that bright. And running a country like a credit-freak property developer he is, will trigger the next financial crisis that will make the GFC look like a walk in the park.

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You also need to acknowledge the momentum that the US economy received under Obama then as well. Problem is, will all these tax cuts help when the inevitable recession hits? No. If anything, it will make things worse, exactly when the US government needs it.

With the Fed being resupplied with a limited bit of ammo and the US government starting to run very short and up against debt ceilings every single year, who is going to back stop the next time Wall Street needs a bailout?

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I suppose it's going to be the American people that will feel it the most, because after all they're the ones that are going to have to pay more for all those Chinese products, or try and shop around elsewhere, if it's possible to.

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Trump is a smart business man who knows how to get the best deal for America.

That crying kid was fake news ! I wish Trump was NZ Prime Minister instead we have this WINZ smiling bottom feeder.

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The thing that amazes me is that you can say that about our PM, yet if I write something about the new Fletcher bosses, there's no way they will post it.
Strange standards!!

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I find myself contemplating the same thing. he is actually far more qualified to lead a country than she is; regardless of however high or low you estimate him, he would do (and does) a far better job than her. but apparently people should be fascinated that she was mistaken for Justin Trudeau's wife and this is what she thinks we want to hear about instead.. and our economy's in the toilet but LOOK HERE'S A BABY!! what an astonishing embarrassment for New Zealand.

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Indeed, jr. The phrase bread and circuses come to mind.

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I like the analogy.. on a separate note I recently returned from a visit to the US East Coast .. was asked on numerous occasions to explain what was going on down here - i.e.: why does NZ have a PM, whom everybody up there gathers was not actually elected by majority, who is openly deriding the President and actively trashing our relationship with the United States. Suffice to say her coalition is damaging our reputation as a country; and, doing business with the United States, it really does make me cringe..

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Smart businessman? Grab them by the Chapter 11!

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I hope China's financial woes won't have any impact on the number of *$2 Shops* we have here in Auckland :(

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What does that tell you about the state of NZ when $2 shops are so popular?

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China's problems are exacerbated by their burgeoning middle class and income expectations where Vietnam now poses as a far cheaper manufacturing outsource destination and without the red tape.

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Correct, that is a result of free trade and a ( little) bit of liberty. It empowers the poor with spending money. Then they want more.
That is why anybody that wants to stay a dictator dares not allow "his" subjects free trade and liberty.

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