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Global Supply Chains Imploding As Quarter Of German Firms Plan To Leave China

Global Supply Chains Imploding As Quarter Of German Firms Plan To Leave China 

The Bussiness Confidence Survey 2019/20 published by the German Chamber of Commerce in China, in cooperation with KPMG in Germany, finds that almost a quarter of German companies operating in China are preparing to relocate production facilities. 

The survey was conducted from late July through mid-September and had 526 member companies out of 2300 respond. Out of the 526 member companies, 23% of the respondents said their factories will be transferred out of China or are contemplating the move.

Among the German companies leaving or actively planning to leave China, about 71% blame increasing labor costs; 33% cited unfavorable policy environment; 25% said the US-China trade war, and 22% said market access barriers. 

Of the respondents who’ve resorted to relocation, 52% have chosen Southeast Asia, 25% India, 19% Central/Eastern Europe, and 17% Western Europe. Only 5% of respondents said they were going to move operations to the US, contrary to President Trump’s claim that companies exiting China will be rushing to the US. 

Respondents said the US-China trade war had created a toxic and “gloomy” business outlook that has contributed to the global synchronized slowdown. 

About 83% of German companies said the trade war has directly or indirectly affected their operations. “Business expectations have dropped to their lowest level in years with only 27% of surveyed German companies expecting to reach or exceed their business targets in 2019,” the survey warned.

Jens Hildebrandt, Executive Director of the German Chamber of Commerce in China, said: “2020 is likely to be characterized by uncertainty, stemming from an unresolved US-China trade dispute related with a decelerating Chinese and global economy.”

German firms also said market access barriers and regulatory hurdles stunted their growth in China, with 66% of firms saying they’ve encountered either direct or indirect market access restrictions.

 …click on the above link to read the rest of the article…

U.S.-China Relations in the Years Ahead: The Trade War Is a Sideshow

U.S.-China Relations in the Years Ahead: The Trade War Is a Sideshow

As President Trump has said many times, we rebuilt China over the past 25 years. No truer words were spoken, but those days are over.

The United States now recognizes China as a strategic and economic rival.

– Vice President Mike Pence during a speech last week at the Woodrow Wilson International Center for Scholars

The truth is that China is a strategic competitor at best that uses coercion and corruption as its tools of statecraft. (Applause.) 

We’ve reconvened “the Quad” – the security talks between Japan, Australia, India and the Untied States that had been dormant for nine years. This will prove very important in the efforts ahead, ensuring that China retains only its proper place in the world.

– Secretary of State Mike Pompeo in a speech last week to the Heritage Foundation

I don’t take the U.S.-China trade war seriously, because I don’t expect a transformative deal to come of it. Specifically, I see the current trade charade as little more than a warmup to a far more serious, unpredictable and dangerous conflict between the U.S. and China in the years ahead.

Last December, in a piece titled Is U.S. Geopolitical Strategy Experiencing a Monumental Shift?, I explained how the U.S. was repositioning its foreign policy to focus on China, and how this would set off a long-lasting and enormously consequential feud between the dominant empire and the emerging power. The post concluded with the following thought:

I’ve now seen enough to seriously consider that we may be entering an entirely new geopolitical environment dominated by vastly increased tensions between the U.S. and China. If so, it will likely last a lot longer than you think as leaders in both China in the U.S. will be looking for a scapegoat as their crony, financialized economies struggle under unpayable debt and unimaginable levels of corruption.

 …click on the above link to read the rest of the article…

Here’s How the New U.S.-China Trade Talks May End

Trade talk
Photo by Flickr.com Kremlin.ru | CC BY | Photoshopped

Here’s How the New U.S.-China Trade Talks May End

With the U.S. and China in the midst of a new round of high level trade talks, this Thursday marks 22 months since tariffs were launched and the trade war began. Far from being “easy to win”, the trade war has lasted far longer than most analysts in the mainstream and alternative media predicted. In past articles, I have warned that the trade war itself is probably not meant to be won at all; rather, it is a massive distraction and a convenient scapegoat as global banks set the implosion of the Everything Bubble in motion. I continue to stand by this assessment, which is why I think it is unlikely that the current talks with China will accomplish much of anything.

This conclusion runs in stark contrast to all the hype we heard in the investment community in September. The way stock markets levitated, one would have thought a deal was assured. Never underestimate the power of blind optimism, I suppose. I believe there are a very limited number of end games to the meeting, none of which will result in an actual “deal”. However, it’s important to understand the dynamics at play here.

First and foremost, if we are to approach the trade war from a mere surface examination, there is really no incentive for China to capitulate to Trump’s demands. There is only one year left until the 2020 elections, and while BOTH economies are certainly seeing a downward plunge, China is hardly crippled by tariffs on exports to the U.S. China can simply bide its time, waiting to see how the U.S. election unfolds. The more unstable the U.S. economy is in 2020, the less likely it will be that Trump will win a second term.

 …click on the above link to read the rest of the article…

Geopolitical Signals Of Global Economic Crisis Abound

Geopolitical Signals Of Global Economic Crisis Abound

As I write this, news feeds are buzzing with questions and confusion over the October US/China trade talks. In September there was a massive propaganda campaign within the mainstream media to push the notion that a deal with China was imminent, which boosted markets otherwise on the verge of a plunge due to a hailstorm of bad financial news. This media campaign also indicated to me that there would be no deal in October – best case, there will be an announcement of “progress” and a temporary pause in tariffs, which will fall apart once again in a month’s time. Worst case scenario, the talks will falter before they ever really begin. Either way, the trade war will continue well into next year.

As I predicted in my article ‘The Ugly Truth About The Trade War’ in September:

“…Every couple of months the trade war deal hype is recycled and every couple of months the markets are hit with renewed disappointment. The latest trade talks are set for Octoberand if they happen at all, it is unlikely they will result in anything of significance. At most, they will be heralded as the “start of a great deal” and both sides will claim “progress was made”, and then, once again, nothing will happen and the conflict will accelerate. You would think people would have figured it out by now, but the investment world learns very slowly and functions solely on blind hope. At the very least, economic analysts are starting to realize that no deal is coming and that the situation is only going to get more tense. In fact, it is designed to get more tense…”

 …click on the above link to read the rest of the article…

The Ugly Truth About The Trade War

The Ugly Truth About The Trade War

This past week was an interesting exercise in false expectations and assumptions. Once again, trade war theatrics were used to stall a stock market plunge as insinuations of a possible “deal” were made by Donald Trump, followed by China’s claim that maybe, just maybe, they would not immediately issue a new round of tariffs right now, but possibly tomorrow, or in a month…

Then, all hell broke loose again when only a few days later both sides jumped into a new round of tariffs leaving markets confused and algo trading computers bewildered, so much so that sometimes they even buy on bad news thinking it’s good news. This is the problem with the Pavlovian response mechanism – You train a dog to salivate at the sound of a bell because he thinks he’s going to get a treat, but then what if you change the bell, or the treat, or the entire dynamic of the process? The dog’s whole world is turned upside down and he curls up in a ball in the corner of the room to make the mental anguish stop.

This is exactly the kind of reaction the globalists are looking for, hence the stop/start insanity of trade discussions, not to mention the dove/hawk behavior of the Federal Reserve. Everything people once thought predictable is being deliberately discombobulated.

Ultimately the circus and the confusion are only products of peoples biases. They want to believe they will get a treat if they act a certain way when certain indicators signal. They want to believe the trade war can be won, or at least that Trump is trying to win. They want to believe that the Fed will save them with a surge of QE.

 …click on the above link to read the rest of the article…

US Slaps New Tariffs On China; One Minute Later China Retaliates

US Slaps New Tariffs On China; One Minute Later China Retaliates

The biggest reason for last week’s torrid stock market rally was rekindled “optimism” that the escalating trade war between the US and China may be on the verge of another ceasefire following phone conversations, fake as they may have been, between the US and Chinese side. This translated into speculation that a new round of tariffs increases slated for this weekend may not take place or be delayed.

However, that did not happen, and with no trade deal in sight, at 12:00am on Sunday, the Trump administration slapped tariffs on $112 billion in Chinese imports, the latest escalation in a trade war that’s ground the global economy to a halt, sent Germany into a recession, and given the market an alibi to keep rising because, wait for it, “a trade deal is imminent.”

Only, it isn’t, and 1 minute later, at 12:01am EDT, China retaliated with higher tariffs being rolled out in stages on a total of about $75 billion of U.S. goods. The target list strikes at the heart of Trump’s political support – factories and farms across the Midwest and South at a time when the U.S. economy is showing signs of slowing down.

The 15% U.S. duty hit consumer goods ranging from footwear and apparel to home textiles and certain technology products like the Apple Watch. A separate batch of about $160 billion in Chinese goods – including laptops and cellphones – will be hit with 15% tariffs on Dec. 15.  China, meanwhile, began applying tariffs of 5 to 10% on U.S. goods ranging from frozen sweet corn and pork liver to bicycle tires on Sunday.

 …click on the above link to read the rest of the article…

Tumbling Yuan Sends Ripples Through Petrochemical Market

Tumbling Yuan Sends Ripples Through Petrochemical Market

Petrochemical industry

The trade war between China and the United States has triggered a global economic slowdown thanks to far-reaching tensions between the world’s two biggest economies. Last Friday China lobbed their most recent retaliation back at the United States by announcing tariffs on an additional $75 billion worth of goods. This is just the most recent counterattack in a now yearlong tit-for-tat spat that has seen both countries confront each other again and again with hard-hitting tariffs (you can see a detailed timeline here) and even culminated in Beijing allowing the Yuan reach its lowest value in years, making Chinese goods cheaper to export and, conversely, making U.S. goods more expensive and therefore less desirable in Chinese markets. 

Because of the far-reaching economic implications of the trade dispute, United States president Donald Trump has been put under a great deal of pressure from global leaders to de-escalate tensions with China. In response, Trump has announced that he will soon begin trade talks with Beijing in order to reach an accord and end the trade war, but the reality is not so simple, especially as the U.S. president seems to be talking out of both sides of his mouth. In a report titled “Trump sends mixed signals on China trade war as pressure mounts to de-escalate” the UK’s Independent points out that, “on Sunday, [President Trump] seemed to express regret over escalating the trade dispute, but the White House later said his only regret was that he didn’t impose even higher tariffs on China.”

Even if Trump does follow through on his public promises to make peace with China, in many sectors of the economy the damage is already done. One of the most recent casualties of the trade war is the Asian petrochemical market, which just hit its lowest profit margin in months.

 …click on the above link to read the rest of the article…

Possible Currency War Would Be A Disaster For Oil

Possible Currency War Would Be A Disaster For Oil

Yuan

Oil prices plunged on Friday after the U.S. and China both announced tariff hikes in tit-for-tat fashion. At the same time, markets opened on a positive note early Monday after President Trump struck a more conciliatory tone. But the respite could be brief.

Global financial markets are completely at the mercy of Trump’s twitter account these days. On Friday, stocks and commodities fell sharply after China announced an increase in tariffs on U.S. goods. In response, Trump announced yet another 5 percent increase in the suite of tariffs on Chinese goods, although, notably, he waited until after financial markets had closed for the week.

Over the weekend at the G-7 Conference in France, Trump sent mixed messages on the trade war, suggesting he had “second thoughts,” with his team subsequently clarifying that his second thoughts regarded his regret he hadn’t hiked tariffs by an even greater amount. Nevertheless, traders took comfort in his comments about wanting to make a deal with China, in addition to his assertion that China had called him up asking for a return to negotiations.

Stocks opened up on a positive note on that news. However, it should be noted that Chinese officials said that they were “not aware of” the phone call that Trump alluded to. When pressed by reporters about the nature of the phone call, Trump said: “I don’t want to talk about calls. We’ve had calls. We’ve had calls at the highest levels.”

If we’ve learned anything over the past few months, it is that these events turn on a dime. The incoherent strategy from the White House, and the complete lack of an official policymaking process, makes it impossible to predict how events will unfold. It is odd then that financial markets were so sanguine at the start of the week.

 …click on the above link to read the rest of the article…

Rabobank: “The US Will Simply Not Allow A New Reserve Currency Without A Fight”

Rabobank: “The US Will Simply Not Allow A New Reserve Currency Without A Fight”

“Peace for our time”

Despite the fact that the German IFO survey was ‘I-ful’, with the official word being that the outlook is “increasingly dire”, and that US core durable goods were -0.4% vs. flat expected, both of which confirm that the real economy is perhaps in real trouble, markets seemed to sigh with relief yesterday. The reason? We have the promise of “peace for our time”. After all, according to the press, US President Trump held out an olive branch to China on trade; and to Iran; and was there perhaps the suggestion of another brunch being offered from Boris Johnson to the EU?

Let’s focus on the US issue first. Nothing we saw or heard yesterday–nothing at all–changes any of the dynamic that we have seen for a long time now. Trump praised Chairman Xi to the skies, and repeated that China wants to make a deal very badly, so much so that they had already called to kick-start talks. Meanwhile, China stated it knew nothing about any such call, and the editor of the Global Times tweeted “Based on what I know, Chinese and US top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn’t have significance that President Trump suggested. China didn’t change its position. China won’t cave to US pressure.” So very little chance of trade peace for our time. Nonetheless, as usual, the equity market fell for this while the smarter bond market largely didn’t – and neither did CNH.

 …click on the above link to read the rest of the article…

A Perfect Storm Is Brewing For US LNG

A Perfect Storm Is Brewing For US LNG

LNG tanker

That the U.S. energy industry would be among those hardest hit by a full-blown trade war between Washington and Beijing was a no-brainer. Yet the extent of the fallout as the war continues is only becoming evident now, as some companies find it hard to secure the funding for their ambitious LNG projects.

According to the Bank of America Merrill Lynch, a number of companies may delay their final investment decisions on new LNG capacity to next year because of U.S.-Chinese trade tensions. Bloomberg reports these include Tellurian and NextDecade, as well as other companies focused exclusively on LNG.

“We see delays as likely given current pricing headwinds, no resolution yet on the U.S.-China trade war, and minimal contract announcements in recent months,” BofA analysts wrote in a recent note to clients, referring to Tellurian’s US$28-billion Driftwood LNG project in Louisiana.

While the companies themselves are not too talkative when it comes to possible obstacles to the so-called second wave of LNG projects in the U.S., the facts are not encouraging: China has imported no U.S. LNG since March, according to data from ClipperData. Bloomberg data is even gloomier: it suggests no U.S. LNG has made its way into China since February. No wonder, since Beijing first imposed a 10-percent tariff on the commodity and then upped this to 25 percent in retaliation for U.S. tariffs. 

Yet there is another aspect of the trade war that is more damaging to U.S. LNG producers. To secure funding for these projects that typically cost billions, U.S. companies need long-term commitments to convince banks the projects are viable. Chinese buyers were the natural choice for these long-term commitments but this is no longer the case as Chinese investors shun U.S. projects amid the war.

 …click on the above link to read the rest of the article…

Lacalle: A Day Of Reckoning Looms For The Global Economy

Lacalle: A Day Of Reckoning Looms For The Global Economy

European and Asian economic data is deteriorating, says economist and author Daniel Lacalle.

“I’d call right now the day of reckoning,” Lacalle says, in this video excerpt of our soon-to-be released podcast In The Arena.

 “The entire message from mainstream consensus is ‘Yes there was a global slowdown,’ but using the trade war as an excuse.”

Lacalle argues that the global growth slowdown has absolutely nothing to do with the trade war and says the trend in economic data around the world suggests Wall Street estimates for global growth are still too high.

“We’re now in the reality check period,” Lacalle says.

“Now, the risk of recession is starting to build up.”

Globalization Just Peaked

Globalization Just Peaked

Joan Miro The farmer’s wife 1923

In Jackson Hole on Friday, Bank of England’s outgoing governor Mark Carney talked about a Synthetic Hegemonic Currency (SHC) that the world ‘must’ create, and I thought: that sounds as creepy as anything Halloween. Now, Carney is a central banker as well as a former Giant Squid partner, hence a certified cultist, but still.

He even mentioned Facebook’s Libra ‘currency’ as some sort of example for something that should replace the US dollar internationally. And that replacement is allegedly needed because countries are hoarding dollars. And/or “protecting themselves by racking up enormous piles of dollar-denominated debt.” Whichever comes first, I guess?!

I’ve read quite a few comments on Carney’s speech, but far as I’ve seen they all ignore one aspect of it: the current shape and form of globalization. See, Carney can see only one thing: more centralization, more things moving more in the same direction. Remember, he’s the man who with Michael Bloomberg in 2016 wrote “How To Make A Profit From Defeating Climate Change”. Aka things are worth doing only if they make you richer.

It’s a state of mind that works fine when you’re inside a system and an echo chamber, when you’re a central banker or a corporate banker. But there’s nothing that indicates it’s a useful state of mind when the system you’re serving must undergo change. What is as true when it comes to climate change as it is for changing the entire global economy. Carney’s got blinders on.

World Needs To End Risky Reliance On US Dollar: BoE’s Carney 

Carney [..] said the problems in the financial system were encouraging protectionist and populist policies. [..] Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.

 …click on the above link to read the rest of the article…

Keep it Simple

Keep it Simple

Markets blow up on Friday on a series of tweets, markets jam higher on the pronouncement of dubious phone calls on Monday. The rapid back and forth has many heads spinning and makes for dramatic headlines as people are searching for explanations. To which I say: Keep it simple, especially in the age of the great confusion.

Background: In 2019 market gains have been driven by pure multiple expansion resting on 2 pillars of support in the face of deteriorating fundamentals: 1. Hope for rate cuts and Fed efficacy 2. Trade optimism. But in process little to no gains are notable since the January 2018 highs, in fact most indexes are down sizably since then.

And when markets are purely reliant on multiple expansion the risk for accidents increases when confidence gets shaken. Friday’s escalation on the trade war front again highlights this point.

And in context of global growth slowing an escalation in the trade war is akin to playing with fire as it risks being a trigger to nudge the world economy into a global recession. After all 9 economies are either in recession or on the verge of going into recession.

This morning I was speaking with Brian Sullivan and he asked me what matters most here, the China trade war, the Fed, or technicals. The short answer is they all matter as it is a battle for control, but how to delineate a complex interplay of conflicting forces into some clarity?

Let me give you my take on all 3 fronts. Before I do, for background here’s the clip from this morning:

China:

Occam’s Razor: The simplest explanation is often the best one and that’s really what’s happening on the China trade war front as far as I’m concerned.

 …click on the above link to read the rest of the article…

Guess Who China Is Blaming For The Riots In Hong Kong?

Guess Who China Is Blaming For The Riots In Hong Kong?

This is not going to end well.  As a result of our ongoing trade war, U.S. relations with China were already rapidly deteriorating, but now the chaos in Hong Kong threatens to completely wreck them.  Violence between political protesters and riot police is making headlines all over the globe, and as you will see below, the Chinese are squarely blaming the United States for what is happening.  On Tuesday, flights at Hong Kong International Airport were canceled for a second day in a row, and riot police stormed the airport in an attempt to evict the thousands of protesters that were occupying it.  This resulted in extremely violent clashes, and you can see raw video of one of these confrontations right here.  Needless to say, the Chinese government is extremely alarmed by these developments.  According to ABC News, one top official told the press that these protests in Hong Kong “have begun to show signs of terrorism”…

The clashes appeared to represent an escalation 10 weeks after the protest’s massive, peaceful beginnings in early June, when hundreds of thousands marched in the semi-autonomous city against a now-suspended extradition bill. A Chinese official said Tuesday that protesters “have begun to show signs of terrorism,” and China appeared to be weighing a crackdown on the democratic movement.

Bolstered by anger over the crackdown by Hong Kong police, the protests has grown more confrontational in recent weeks and reached new levels last Monday with a city-wide strike that disrupting traffic and hundreds of flights.

 …click on the above link to read the rest of the article…

Powell Rate Cut Unleashes Volatility Tsunami

Powell Rate Cut Unleashes Volatility Tsunami

It wasn’t supposed to work this way.

In the rate cut playbook envisioned by Trump, Powell’s July 31st rate cut was supposed to send stocks higher while crushing the dollar. However, when the FOMC announce a “mid-cycle”, 25bps cut, the outcome was not only a surge in the dollar but also a surge in volatility not seen so far this year.

The sequence of events is familiar to all by now: at first, Powell’s rate cut spooked the market which had been expected either a 50bps cut, or an explicit promise of an easing cycle. It got neither, and neither did Trump, who the very next day realized that with the Fed now explicitly focusing on global uncertainties, read trade war, as a catalyst for future rate cuts as demonstrated by the following infamous chart

…. decided to escalate the trade war with China by announcing 10% tariffs on the remaining $300BN in Chinese imports, sending stocks and bond yields plunging, and the market pricing in as much as 100bps of more rate cuts in 12 months, forcing Powell to cut far more than just another 25bps or so as the Fed Chair suggested in the July FOMC meeting.

China immediately retaliated by devaluing the Yuan below 7.00 for the first time since 2008 and halting US ag imports, which in turn prompted the US Treasury to declare China a currency manipulator. Meanwhile, China’s yuan devaluation means the White House is set to unveil even higher tariffs, resulting in an even weaker yuan, and so on, in a toxic feedback loop that may soon escalate the trade and currency war into an all-out shooting war.

 …click on the above link to read the rest of the article…

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