China is in much worse shape than anyone is letting on
China’s Shanghai Composite stock index has fallen over 28% year-to-date to a four-year low. Third quarter GDP was the lowest reported on record and its currency, the yuan, has fallen to its lowest level in more than a decade. One Chinese yuan is now worth about $0.14 USD.
Question of the day
As a response to the recent stock market selloff, which by some estimates reduced the value of Chinese stocks by as much as $3 trillion RMB, the government is:
a) Telling investors that the stock market is undervalued
b) Directing brokers to stop margin calls
c) Ordering government backed funds to buy stocks
d) Directing the central bank to maintain neutral monetary policy and enhance liquidity
e) All of the above
This has forced China to negotiate with the US regarding trade
As recently as September 25, 2018, Chinese deputy trade negotiator Wang Shouwen said, “How could you negotiate with someone when he puts a knife on your neck? If this continues, it will destroy in an instant the gains of the last four decades of China-US relations.” Just yesterday, after releasing very weak economic growth data for the third quarter, Vice-premier Liu He said, “China and the US are currently in contact,” referring to discussion about a meeting between Premier Xi and President Trump at the G20 summit next month. It would appear that President Trump was either very perceptive about the Chinese economy, got great advice, has an uncanny sense of timing, or some combination of all three to force the Chinese to negotiate. Either way, the US is clearly in a position of strength and everyone at the negotiating table knows it.
7.1 million job openings, 6.2 million unemployed
- Job openings in August rose to 7.136 million from 6.044 million a year ago. This is the highest level of job openings since the series started in 2000.
- Total unemployment in August was 6.23 million. The latest September data show that total unemployment fell further to just 5.96 million.
- Obviously, the problem is not just finding workers, it is finding qualified workers.
- Near term prospects for further wage growth are strong. We are nearing full-employment and wages are growing at an annual rate of nearly 3%.
Leading Economic Indicators suggest growth will continue
- The Conference Board reported that the Leading Economic Index for September grew 0.5% to 111.8 after a 0.4% gain in August.
- Eight of the ten components that make up the index increased or improved, led by New Orders and the Leading Credit Index.
- Only building permits and weekly manufacturing hours worked were lower. We would expect to see some effects from Hurricane Florence and Hurricane Michael creep into the data for October and November.
- In talking with a furniture manufacturer recently, we learned that the lag between natural disasters and new orders can be as much as one year.
Interest rates and the Fed top investor worries in a recent Flash Investor Survey
- A recent survey of over 300 professional money managers from Evercore ISI shows that the #1 worry about the stock market is Interest Rates & the Fed with 42% of all respondents.Trade War is #2 with 22%
- The S&P 500 median forecast for year-end 2018 is 2850, up about 3% from today’s close of 2767.
- The average estimate for the yield on the 10-year Treasury by year-end 2018 is 3.25%, with a high estimate of 4% and a low estimate of 2.05%.
- Finally, managers are anticipating, and planning on, a divided government with Democrats taking the House of Representatives while the Senate is expected to stay Republican.
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