9 May

Trump Says China Broke the Trade Deal, Breaking China’s Market

WRITTEN BY Mayur Sontakke, CFA, FRM

China developments

On May 8, President Donald Trump unleashed a fresh Twitter attack on China and the US Democrats. His tweet said that China might be trying to renegotiate the trade deal with the hope that it can negotiate better with the Democrats in 2020, with “hope” in capital letters.

Hours later, he tweeted that China’s vice premier, Liu He, would be coming to the United States to make a deal. The fresh two-day talks are scheduled for May 9 and 10. However, the tariffs are expected to come into effect on May 10 if the talks fail. Most experts, including the former head of the IMF’s China division and JPMorgan Chase’s Jamie Dimon, feel that a trade deal this week is unlikely.

Trump Says China Broke the Trade Deal, Breaking China’s Market

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Meanwhile, new economic data for April showed that inflation as measured by the consumer price index came in at the expected 2.5%, while inflation as measured by the producer price index—a measure of producers’ input costs—came in at 0.9%. With producer costs rising faster than consumer prices, corporate profits are expected to remain under pressure. In the first quarter of 2019, Chinese industrial profits fell 3.3% year-over-year.

New loan issuances for March were lower than expected. However, Chinese banks’ loan books grew marginally higher than expected in the month.

Shanghai Composite falls

In its second straight fall of the week, the Shanghai Composite Index fell 1.48% to 2,850.95 on May 9, close to the day’s low and its lowest point in 11 weeks. The index continued to trade in a narrow range as investors set their eyes on the fresh trade talks.

As we expected, the iShares MSCI China ETF (MCHI) outperformed other China-focused ETFs on May 8, falling 0.1% against the 1.12% fall in the Shanghai Composite and the 0.33% fall in the iShares China Large-Cap ETF (FXI). FXI was trading 1.8% lower in premarket today at 4:18 AM EDT.

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