China Is Feeling The Pain

Posted: Jul 03, 2018 10:38 AM
China Is Feeling The Pain

Yesterday, economic data lifted the Atlanta Fed’s GDP estimate, which had plummeted last week on slight disappointments from several economic releases.

But the real anxiety continues to revolve around the trade showdown.  Interestingly, the data in general continues to surge, even as respondents’ express trade worries.  Take yesterday’s ISM manufacturing report:

  • Headline 60.2 
  • May 58.7
  • Wall Street estimate 58.0

Yet, these were the comments:

 “U.S. tariff policy and lack of predictability, along with [the] threat of trade wars, [is a] causing general business instability and [is] drag on growth for investments.” (Electrical Equipment, Appliances & Components)

“We export to more than 100 countries. We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues (for example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs). Within our company, there is a sense of uncertainty due to potential trade wars.” (Food, Beverage & Tobacco Products)

“The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20 percent since March.” (Fabricated Metal Products)

 “The economy and product demand still continue to be strong. Having trouble finding people [to fill] blue collar positions. Lead times for parts and materials are moving out, and we are seeing commodity cost pressures increases with the threat of tariffs. Additionally, suppliers are asking for more price increases.” (Machinery)

“The uncertainty of U.S. tariffs and the Canada/Mexico/E.U. retaliatory tariffs continues to cloud strategic planning efforts. Contingency planning (for tariffs) is consuming large amounts of manpower that could be used for more productive projects. The tariffs are improving margins in our raw material businesses; however, our businesses which are further up the supply chain are seeing significant inflation.” (Miscellaneous Manufacturing)

"The steel tariffs continue to drive uncertainty. Projects and services using steel have limited days that prices are good for. Trucking is tight, requiring advanced planning and increasing costs.” (Paper Products)

We must make sure to not lose focus on facts versus fear.  Moreover, understand counterparties to these trade negotiations are feeling a lot more pain that anyone in the U.S. media would admit.

While supporting China’s efforts on trade negotiations with articles that echo American anxiety like these headlines:

Roundup: U.S. agricultural commodities post losses amid escalating trade tensions

Mexico should diversify trade in wake of U.S. tariffs: think tank

But an article trying to quell fear stands out as a tacit admission that the carnage in China’s stock market, and their slowing economy, is taking a bigger pounding than America.

“Intensifying trade frictions between China and the United States is a test that the Chinese economy inevitably had to experience during its rise.”

“We have long anticipated and prepared for this...The impact on the Chinese economy is within a controllable range.”


I’d like to see buying move beyond technology and need to see a significant improvement in market breadth.

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The markets will close today at 1 o'clock EST and will be closed tomorrow in observance of Independence Day. There will be no Afternoon Commentary and no reports tomorrow.  

We wish everyone a safe and happy holiday.  God Bless America.