Morning Commentary: China Calls for the Cavalry

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

China Calls for the Cavalry Share this story: Alan Rose Foreign Exchange Head Trader

As the U.S. – China trade war continues to heat up, the Chinese economy has shown no visible signs of any real weakness so far despite the fact that investors have been fleeing the Shanghai Composite Index as it has declined by 25% so far this year. The Shanghai Composite Index is the worst performing equity index among the main global benchmarks.   While global investors have been fleeing Chinese equities as they fear a long and drawn out trade war with the U.S. and a potentially weaker Chinese economy, the Chinese economy continues to show almost no effects from the heightened trade tension and tariffs that the U.S. has imposed on Chinese exports. Chinese growth in Q3 dropped from 6.7% in Q2 to 6.5%, which was slightly below expectations, and is the slowest pace of growth going back to the Great Recession in 2009.   Chinese equities opened down 1.1% piggybacking the weak U.S. closing and prior to the weak Chinese GDP report. Chinese authorities were fearful about a sharp selloff in Chinese equities and sent for the cavalry. Coordinated statements from the central bank, securities watchdog, and regulators all discussed the possibility of more stimulative measures for the economy, that stock valuations were healthy and Chinese fundamentals were strong. They warned against recent “abnormal market fluctuations” and emphasized the “stable financial system.”   Chinese equities quickly reversed course and finished the session up by nearly 2.50% and the Chinese yuan finished marginally stronger. Despite the Chinese jawboning to support the markets, investors remain very concerned not only about the trade war between the U.S. and China but a deeper geopolitical battle between the countries that could have economic consequences and disrupt supply chains across the globe. The White House is dug on this issue and we anticipate that this will be a major theme of the markets for the months and years ahead. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: Canada got a double-whammy of negative news this morning. Retail Sales for August came in much weaker than forecast at -0.1% against expectations of a gain of 0.3%. CPI for September fell by 0.4% against expectations of a gain of 0.1%. YoY CPI fell from 2.8% to 2.2%; Canadian interest rates are lower on the session and the Canadian dollar is fractionally weaker. The Bank of Canada meets next week.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!

Follow City National Bank on social media:

Investment and Insurance Products: • Are Not insured by the FDIC or any other federal government agency • Are Not deposits of or guaranteed by a Bank or any Bank Affiliate • May Lose Value This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2018 City National Bank – All Rights Reserved. 350 South Grand Avenue, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | CNB MEMBER FDIC