Tags: China | Trump Administration | trade | war | china | economy

China, US Suffer Similar Economic Damage in Trade War

China, US Suffer Similar Economic Damage in Trade War
(Nuthawut Somsuk/Dreamstime)

By    |   Monday, 14 October 2019 11:56 AM

Stanley Druckenmiller, in a recent interview, talked about the “inside” of the U.S. stock market as the best measure of its health and the health of the economy.

Druckenmiller focuses on transportation, brick and mortar retail and small cap stocks as represented by the Russell 2000.

Examining the similar sectors and indices in China, given the recent blacklisting by the U.S. of more than a few stocks, gives us insight into their economy and whether it makes sense for them to make concessions and a deal with the U.S.

Looking at China’s transportation index, it includes freights, airlines, and shipping.

The China Forwarders Freight Index measures the movement of goods and services in China.

In 2019, after a peak in March, the index declined by about 6% and has gone sideways for the past 3 months.

Based on the data we have, one can draw a reasonable conclusion that worldwide trade with China has dampened, but certainly has not been hurt too badly.

Moving to the Chinese retail sector and specifically brick and mortar as opposed to online sales, China's retail trade has slowed considerably. July and August retail sales fell to 7.5% after an April peak of 9.8%.

Current data shows sales have slowed but remain higher than the long-term average of 4.27%.

The U.S. markets have illustrated a palpable disparity among the most salient sectors of the U.S. economy.

For instance, while the tech sector has outperformed, the retail sector is near multi-year lows.

Looking inside the China market a similar disparity exists.

To compare apples to apples, we must also look at China’s small cap index versus the U.S. small cap index. The small cap indices in both countries, measure the health of the manufacturing sector, which has been impacted by the tariffs.

The parallels between the U.S. small cap index and the China small cap index are unsurprisingly similar. Presently, the U.S. small cap index is slightly outperforming the China small cap index.

As a result of the tariffs, China has been trying to diversify away from the U.S., talking with India and Russia to increase trade for continued economic growth which is partially why China’s growth numbers as forecasted by the IMF remain strong.

Meanwhile, with the growth slowing, the Trump administration is banking on the Federal Reserve cutting interest rates further to bolster the economy. While the short-term stress in both economies might encourage them to play nice, longer term, China may just have the upper hand despite what the shorter-term daily charts are showing.

Should China and the U.S. make no significant progress, looking at buying into the China market and selling the U.S. market as a hedge is a viable longer-term option for investors.

Michele ‘Mish’ Schneider serves as Director of Trading Education at MarketGauge.com. For 20 years, MarketGauge.com has provided financial information and education to thousands. MarketWatch named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish won the Top Stock Pick of the year for RealVision. Follow her on Twitter at Michele Schneider @marketminute

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MicheleSchneider
Should China and the U.S. make no significant progress, looking at buying into the China market and selling the U.S. market as a hedge is a viable longer-term option for investors.
trade, war, china, economy
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2019-56-14
Monday, 14 October 2019 11:56 AM
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