China To The Table

Bad economic data in China is raising speculation that we will get a trade deal as the risks to the Chinese and global economy are rising. The fallout from the trade war is hitting China much harder than its trade partners, as a slew of bad economic data from housing to manufacturing and growth. Reports that China would hold talks with the United States on January 7-8, to look to find a way out of the trade war is coming, as China moved to cut the Chinese bank’s reserve requirement ratios (RRRs), taxes and fees, to stimulate lending as the slowdown in the Chinese economy continues to accelerate. That is not to say that there are not any other casualties from the U.S. trade war, but other economies seem to be more resilient from the fallout. Germany, for example, saw unemployment fall to a record low in a report that showed that joblessness decreased by a seasonally adjusted 14,000 in December to 2.26 million, keeping the jobless rate at 5 percent.

The U.S. did see a massive drop in its manufacturing data. The Institute for Supply Management (ISM) reported its manufacturing index fell to 54.1% last month from 59.3%, the biggest one month drop since the Financial crisis in 2008. That caused a big sell-off in stocks. Yet the data really fell from a high level and was driven down by a big drop in new orders. The index for new orders plunged by 11 points to 51.1, the weakest reading since August 2016, but still in expansion. The big drop in the ISM survey may have something to do with the end of the year and earlier buying to get ahead of sanctions. Besides, it overlooked a spectacular ADP/Moody’s jobs report that showed that private jobs rose by 271,000 in December,  the biggest gain since February 2017 and brought the monthly average for 2018 to 203,000. That signals that despite the slowdown in manufacturing, the overall economy is still creating jobs and more than likely we will see the manufacturing data snap back in the new year. It will really snap back if the U.S. and China lay the groundwork for a trade truce.

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