China
is the most important economy in the world. In the past few years, the country
has transformed itself from a struggling Asian country to one of the
fastest-growing one. It has achieved this by educating its young population on
business and manufacturing. This has made it the world’s factory. In fact, most
things used around the world are mostly manufactured in China. With the ‘Made
in China 2025’ project, the country aims to transition from low technology
manufacturing to a leading player in the high-tech industry. To achieve this,
the country is training its young people and making large investments in future
technologies like automotive and robotics.
The
country has also embarked on large-scale infrastructure projects. In the past
few years, hundreds of new cities have been built, which has helped with the
GDP growth. It has also achieved this through international relations. By this,
it has provided a lot of loans to other countries with very few strings
attached.
In
addition to all this, China is important because of the amount of goods it buys
and sells. For example, it is the world’s biggest buyer of commodities like
crude oil, soybeans, corn, and cotton. It is also a leading producer of key
goods like gold.
This
week, Chinese stocks have declined sharply after a tweet from Trump on Sunday
lowered the hopes of a trade deal. In the tweet, the US president said that the
tariffs on goods worth more than $200 billion will start on Friday. This caught
many off-guard because they expected a different story. The market was waiting
for a deal to be sealed soon.
There
are three main reasons why Trump appeared to change his mind on trade. First,
there was a belief among the US negotiators that China was not committed to the
outcomes of the negotiations. The country has rejected these claims and accused
the US of walking away from a potential deal. Second, Trump genuinely believes
that the tariffs in place have helped the US. He measures this by the billions
of dollars being collected in form of tariffs. Third, he was emboldened by the
Q1 GDP numbers that came in at 3.2%. Finally, the president believes that the
deal currently being negotiated will not have a major impact on the US economy.
After
the Sunday’s announcement, the Chinese stocks had their worst day in months. In
the past few days, the China’s A50 index has declined by more than 8% as
investors worry about trade. Today, in addition to trade, the index declined
after mixed economic data from China. The CPI rose by a YoY rate of 2.5% while
the loan growth disappointed. The outstanding loan growth rose by 13.5%, which
was lower than the expected 13.7%.
On
the chart below, the CNX/USD index has declined from 13800 to a low of 12,425.
On the chart, this price is below the 21-day and 42-day moving averages. The
RSI has dropped to almost the oversold level. Therefore, while there are risks
on trade, there is a likelihood that a deal will ultimately be made. If it
does, the index will resume the upward trend.
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