E Early Endings

Better to end a difficult story early than prolong it with more hope and dreams. “Sometimes you have to walk,” quips Trump as he departs Hanoi. The difference good and bad books or movies pivots on their length and their endings letting the imagination of the audience drive to bigger conclusions and future sequels. Perhaps this is the way to end the best start to equities since 1987. This is the logic in play today for the early endings of the bull market. The causality of if A then B is under investigation as we all react to the early ending of the Trump/Kim summit with no deal drives a sniff failure for China/US trade talks as deadlines don’t matter there even as the US drops its threat on tariffs. Markets are fickle and the heavy load of economic data hasn’t helped counter the steady flow of difficult geopolitical news – from India/Pakistan where a captured pilot seems the key to peace; to North Korea where sanctions and action on denuclearization block a deal; to EU/UK on Brexit where Labour’s Corbyn backs a second referendum after Parliament again votes down May’s plan. The markets had plenty of economic news to analyze overnight as well with weaker China NBS PMI – manufacturing at 3-year lows with export orders at decade lows and the January and February combined output weak enough to give pause to what happens to China growth even with a US deal. The Korea and Japan industrial production in January was weaker than expected as well making clear that China weakness is exported to the region and world. The EU flash inflation reports from France, Spain and Italy were in line and leave the German story as the tie-breaker – but there isn’t anything to prevent the ECB from being dovish. The Sweden GDP was better than expected but the India weaker and world 4Q GDP waits for the US data next. This is the rub as the US slowdown in 4Q bleeds into 1Q logically making divergence difficult to believe in and the USD looking set for even more pain as carry and growth views collide – with 95.50 and 94.30 both in play for a larger ending to the USD rally.   

Question for the DayIs the China PMI a foreshadowing for larger growth troubles in 1Q globally? The hope was that US/China trade deals and China stimulus plans mixed with a big push on banks to led to private companies will drive a recovery in 2019. Many see that in play already with green shoots for growth showing up in some reports but not today. The WSJ article on China local government debt for development is a chilling reminder that the present spending there has been done before and that there is a real risk for “pushing on a string” for more debt inspired building and spending. 

The big banks in China seem more linked than ever to property risks and that makes the present moves and focus on trade less important to the bigger picture for 2019 in China growth.  Lending to smaller business will pivot on how big banks see property prices and sales. 

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