### Summary
Oil prices rose in Asian trade, unfazed by China's disappointing interest rate cut, as the prospect of tighter supplies supported the outlook.
### Facts
- 💰 Oil prices rose in Asian trade, shrugging off China's interest rate cut.
- 🛢️ Concerns over slowing demand in China and rising US interest rates had driven steep losses in crude prices.
- 📉 China cut its one-year loan prime rate by 10 basis points to 3.45%, disappointing market forecasts for a larger cut.
- 🏢 Lack of changes in the mortgage rate raised concerns over a worsening real estate crisis in China.
- 🌍 Deep production cuts from Saudi Arabia and Russia are expected to limit crude supplies by nearly 70 million barrels over 45 days.
- 🇺🇸 Robust fuel consumption in the US, particularly during the summer season, pointed to tighter markets.
- 📈 Analysts expect oil prices to remain relatively higher for the rest of the year, despite the prospect of higher interest rates affecting US demand.
China's economy, which has been a model of growth for the past 40 years, is facing deep distress and its long era of rapid economic expansion may be coming to an end, marked by slow growth, unfavorable demographics, and a growing divide with the US and its allies, according to the Wall Street Journal.
The "China Shock" in the 2000s resulted in a significant loss of manufacturing jobs in the United States, but the potential job loss associated with a green transition is not comparable and should not be exaggerated.
Despite U.S. trade shifting away from China, the country still relies on China-linked supply chains, leading to higher costs for consumers and uncertain benefits in terms of improved manufacturing efficiency, according to research presented at a Federal Reserve symposium.
Investors are becoming increasingly concerned about the state of China's economy as informal gauges, such as PMI surveys and soft surveys, indicate a deep-seated confidence problem and a potential miss of the country's 5% growth target this year, leading to a retreat from global assets exposed to the slowdown.
China's economic slowdown is causing alarm worldwide, with countries experiencing a slump in trade, falling commodity prices, and a decrease in Chinese demand for goods and services, while global investors are pulling billions of dollars from China's stock markets and cutting their targets for Chinese equities.
A potential economic downturn in China may have implications for other countries, but the impact on the United States is expected to be minor due to limited exposure to China's economy.
Many ordinary Chinese are experiencing a widespread economic slowdown characterized by pessimism and resignation, despite Beijing's attempts to downplay concerns and project a positive narrative.
Forecasters have decreased their growth expectations for China due to deflation, rising youth unemployment, and a property-market crisis, with GDP predicted to rise by only 5.1% in 2023 and 4.5% in 2024.
China has defended its business practices and claimed that most U.S. firms want to stay and that Beijing is working to ease market access for foreign companies, in response to concerns from American businesses and global investors about the difficulties and risks of doing business in China.
US companies are becoming increasingly hesitant to invest in China due to concerns over new anti-spying laws, competition from state-funded firms, and the country's economic challenges such as deflation and a property crisis.
UBS reports higher than expected profits, job creation in the US slows, and markets rally on weaker economic data and hope for a pause in interest rate hikes. China's factory activity shrinks but at a slower pace, while retail sales increase. There are opportunities for investors in other Asian markets.
Despite efforts by the U.S. and other countries to reduce reliance on Chinese supply chains, Chinese companies have successfully expanded their presence in key markets such as cutting-edge materials and electric vehicles, making it difficult for countries to ensure their economic security.
U.S. stock futures decline as concerns over China's economy and rising bond yields weigh on global sentiment and equities.
China's share of US goods imports has dropped to its lowest level since 2006, as American companies reorganize supply chains to reduce dependence on China and shift to countries like Mexico and Vietnam.
Policymakers expect slower growth in China, potentially below 4%, as the country transitions to a consumption-driven economy, which could have a negative impact on the global economy and alleviate inflationary pressures.
China's appeal to multinational corporations remains strong due to its robust domestic market and commitment to opening up its economy, leading to a shift in the quality of foreign investment inflow into the country, particularly in sectors such as trade in services and high-end manufacturing.
Despite the risks and challenges of doing business in China, many Western companies still see it as a long-term bet due to its economic potential, but they are increasingly cautious and aware of the hazards they face.
US companies with significant revenue exposure to China are at risk due to the country's struggling economy, characterized by high youth unemployment rates and recent property defaults, according to Bank of America.
China's economy has consistently outperformed other major economies in the past four years, but the US is spreading false narratives and propaganda to hide this reality, according to John Ross, former director of economic and business policy for the mayor of London. The US has two motives: discouraging foreign investment in China and influencing China's political and economic policies.
China's property shares are declining and tech shares are underperforming, leading to a slide in the Asian market, while the European market waits for monetary policy decisions from the ECB and the Bank of England.
China's economic problems are more likely to impact its neighboring countries and Europe than the United States, according to US deputy treasury secretary Wally Adeyemo, who noted China's short-term capacity to handle its economy but stressed the need for addressing long-term structural economic challenges.
Big Japanese manufacturers and the services sector in Japan are experiencing a decline in confidence, with concerns of a slowdown in China's economy affecting global and domestic growth, according to a Reuters poll. The weak sentiment in the business sector raises doubts about the ability of exports to drive economic recovery amid weak domestic demand. Many companies cited high input costs and weak demand as contributing factors, along with geopolitical risks and tensions between the US and China.
U.S. and European firms are redirecting their investment away from China to other developing markets, primarily India, due to concerns over China's business environment, economic recovery, and politics, according to a report from Rhodium Group, although China's share of global growth continues to increase.
The performance of Alibaba and JD.com stocks suggests that investors are uncertain about whether China's economy is improving despite positive Chinese data.
China's struggling economy, including its deflation and property crisis, will have a significant impact on the US due to its high foreign investment exposure in China and the dependence of key exporting countries like Chile, Australia, and Peru on the Chinese market.
Summary: U.S. stocks slumped amid mixed sentiment about the economy, with only the Dow Jones Industrial Average rising for the week, while Asia-Pacific markets mostly fell, and China's venture capital investment dropped by 31.4% compared to 2022 due to its sluggish economy and geopolitical tensions discouraging foreign investors.
U.S. business optimism in China has reached a record low according to an annual survey by the American Chamber of Commerce, signaling a potential end to days of outperformance.
The outlook of U.S. companies on China's markets in the next five years has hit a record low due to factors such as political tensions, tariffs, slow Covid recovery, and issues in the real estate market; however, complete decoupling between the two economies is unlikely.
UBS Investment Bank suggests that the stock slump in China is almost over and investors should be more optimistic about the market outlook, as economic fundamentals have improved and technical signals indicate a potential market rebound.
U.S. companies are losing confidence in China and some are limiting their investments due to tensions between the two countries and China's economic slowdown.
Major U.S. companies are increasingly seeking manufacturing alternatives in countries like India to diversify their supply chains and reduce dependence on China due to the pandemic and escalating tensions between Washington and Beijing.
Chinese stocks defy regional declines as tech stocks rise, while the 10-year Treasury yield slightly decreases from a 16-year high; US futures tick higher following a 1.6% slide in the S&P 500; bond yields rise in Australia and New Zealand after positive US labor market data; and India's sovereign debt is set to be included in JPMorgan's benchmark emerging-markets index.
Profits at China's industrial firms decreased by 11.7% in the first eight months of the year, but the pace of decline eased slightly, suggesting a modest recovery is taking place due to policy support measures.
China's President Xi Jinping emphasizes the need for reform and opening up the economy as foreign investors consider leaving, calling for a greater opening up of free-trade zones and a focus on playing by international trade rules. Despite these efforts, China's foreign direct investment has fallen and US businesses remain skeptical due to regulatory uncertainties and geopolitical risks.
Chinese exporters are navigating a bumpy road back overseas amid a turbulent economic recovery, but are adapting to changes in global supply chains by diversifying production lines and exploring new markets such as the US.
American firms are increasingly bringing manufacturing operations back to the US, with mentions of nearshoring and reshoring growing by 216% year over year since 2022; this trend has been accelerated by the trade war with China and the pandemic's disruption to the global supply chain, leading to a boom in construction and manufacturing projects in the US.
China's chip imports have declined by 15% in the first nine months of 2023, indicating the impact of US tech export controls, with the volume of chips imported showing a modest improvement in recent months despite stifling export restrictions.
China's economy is facing uncertainties due to concerns about the property crisis, a lack of confidence, and a slowdown in year-on-year GDP growth, which is expected to be below Beijing's target of around 5%.
Investors remain pessimistic about the Chinese economy as China-exposed stocks continue to decline, despite signs of improvement.
