A Closer Look at The Slowdown in China
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T
he US and China are set to resume trade talks today. The talks are aimed at staving off the Trump administration’s plans to raise tariffs on $200 billion of Chinese goods to 25% (up from the 10% levies imposed last year). Without a deal - or an agreement to extend the talks - the tariff increase will go into effect on March 2.
China is increasingly under pressure to make a deal.
Last week, we received an abundance of data releases from China, most of which confirmed its slowing growth. China’s GDP growth slowed to 6.4% year-over-year in the fourth quarter from 6.5%. While that is still a large number, it represents its slowest pace in a decade. While fixed investment was stable, consumer sentiment and retail sales are flat-lining or weakening fast. The Purchasing Managers Index (PMI) turned in a reading of 49.7 - anything under 50 indicates a contraction.
Interestingly, one data point indicates longer-term, structural growth concerns: China recorded its lowest birth rate since 1949 of 10.94 births per thousand. The chart above shows new births dropped to 15.23 million, the lowest since 1961, which coincided with a major famine. The natural population growth rate fell to just 3.81 per thousand. While this is not totally surprising given China’s one-child policy was only repealed in 2014, a weak labor force pipeline and an aging population requiring social support may limit long-term economic growth. In the short run, Chinese officials have the fiscal and monetary tools to stabilize the economy through infrastructure spending, tax cuts and liquidity injections.
For now, all eyes will be on the trade negotiation progress (or lack thereof). Any slowdown in China of course also impacts the United States and the companies that do business there.
The trade war has magnified uncertainties for corporations and unsettled investors, so the US is also under pressure to make a deal. Most analysts believe a major breakthrough is unlikely this week but if both sides agree to keep talking, that will be seen as a positive step.
However, in the long run, population demographics will pose a challenge to a Chinese economy that is naturally decelerating as it matures from industrializing to consumer-driven. And that will have an impact on global growth prospects in the future (see the IMF Global Growth exhibit below).
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Markets were closed last Monday in observance of Martin Luther King Jr. Day, and US equities ended the holiday-shortened week mostly flat. The week’s earnings reports continued to indicate strong gains in fourth-quarter profits, but so far, figures are well below the pace of increases we saw in 2018. Economic data was mixed last week, but stocks rallied on Friday after news broke that President Trump agreed to a deal to reopen the government. The deal did not include specific funding for a wall, but it will fund the government through February 15 to allow for further negotiations, which are already underway.
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Global Growth
Last week, the International Monetary Fund (IMF) revised down its estimates for global growth, suggesting that the expansion seen in recent years is losing momentum.
The Fund now projects a 3.5% growth rate worldwide for 2019 and 3.6% for 2020 (0.2 and 0.1 percentage points below its last forecast in October)
The revision comes amid increased tariffs between China and the US, weakness for German auto manufacturers due to new fuel emission standards, and soft domestic demand in Italy after recent sovereign and financial risks.
The IMF further explained that global growth would likely fall short of the baseline projection if the slowdown in China is deeper than projected. As seen in 2015–16, concerns about China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets.
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Global Balance Sheets
There has been a sizable shift in global liquidity as the Fed continues to unload assets and the European Central Bank tapers its bond purchases. As shown in the chart above, global balance sheets have shrunk for the first time since 2013.
Impacts of balance-sheet normalization are tough to quantify, and markets have sold off at any sign of destabilization recently.
In January, the Fed indicated they would be flexible with all of its policy tools. Since then, there has been speculation that they will slow, pause, or even end its balance sheet reduction. We may learn more today after Jerome Powell’s press conference.
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Superbowl Props
This Sunday's Superbowl is the first one in which gamblers can place legal sports bets outside of Las Vegas, priming the big game to be the most-wagered sporting event ever. Experts are predicting over $320 million will be wagered.
However, i
nstead of just wagering on the game's outcome, sports books are increasingly offering a diverse array of prop bets. Proposition bets, more commonly known as a prop bets, allow you to bet on events within the game itself.
Super Bowl 53 has taken that idea to the next level with thousands of options ranging from things directly related to the action on the field to just about anything else you could think of.
Listed below are just some of the ways you can win money:
Pre-Game:
- Will the opening coin toss land heads or tails?
- Will the length of the national anthem exceed 1 minute, 50 seconds?
- Will Bill Belichick or Sean McVay be shown first on TV during the anthem?
Half-Time Show:
- What song will Maroon 5 open halftime with?
- Will Adam Levine wear a leather jacket?
- Will Andre 3000 join Big Boi on stage?
- Will any performer fall down?
In-Game and Post-Game Bets:
- What will be the first play of the game (pass, run, or sack)?
- Will there be a flea-flicker?
- Will the Super Bowl points record of 75 be broken?
- What color liquid will be poured on the winning coach?
- Will Giselle Bundchen be shown on live broadcast?
- Who will the MVP mention first in their speech?
Whether you're into the parties, food, commercials, halftime show or the game itself, the Superbowl has something for everyone. And nothing makes you feel like part of the action quite like having some action on the game. Good luck!!
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