What's going on?
Fresh data on Wednesday showed profits at Chinese factories falling by the most on record, as America’s trade war pressure continues to make a man out of China.
What does this mean?
China’s manufacturing sector ‒ which makes up 40% of the country’s economy ‒ is getting hit by the double whammy of reduced demand at home and a bruising trade war with the US. That could spell trouble for China’s overall economy, where growth has already slowed to near 30-year lows. And with factory profits having now fallen three months in a row, investors are beginning to worry China’s growth rate may dip even further.
Chinese factories did get some good news on Wednesday, when the US president declared talks on a phase one trade deal almost done. Then again, it might give them something new to worry about: namely phase two, when the US will be pressing China to scrap the subsidies it gives its factories. America certainly looks like it’ll have the upper hand in those discussions: revised data on Wednesday showed its economy grew at a faster rate than initially estimated.
Why should I care?
The bigger picture: Mo’ problems, mo’ money.
A slowing growth rate should worry Chinese authorities, especially after the country’s central bank warned of increasing downside risks for the economy. That could in turn nudge the government to take further measures to boost its economy, like lowering interest rates, cutting taxes, and increasing infrastructure spending.
For you personally: Wounded in action.
Deere & Co has been one of the trade war’s stock market casualties this year, and the US agricultural equipment maker continued its onward limp on Tuesday. It reported falling profit and gave a gloomy outlook as US farmers, who are bearing the brunt of the trade war, spend less on equipment. Still, if China ends up buying more US farm goods as part of a phase one trade deal, perhaps farmers’ fortunes ‒ and Deere’s ‒ may change…