Re-Diverting Attention Back to China

May 15, 2020 | Nick Scholte


To the surprise of no one, economic data continues to be horrible owing to the Covid19 shutdown. Expect the Trump administration to begin aggressively shifting focus back to China. Economic sabre-rattling between the two nations intensified today.

To my clients:

It was a down week for North American stock markets with the Canadian TSX falling 2.2%; the U.S. Dow Jones Index falling 2.7%; and the U.S. S&P 500 falling 2.3%.

It’s a short update this week with some concluding thoughts on the building tensions with China. But first, a few quick obligatory comments on the continuing economic impact of Covid 19…

April U.S. retail sales were released this morning and they were substantially worse than feared. Expectations were for a month-over-month decline of 12.0%. The actual result was -16.4%. The -16.4% reading represents a record month-over-month decline from what was already a record level in March. Of course, given the shutdown of the U.S. and worldwide economy, this should come as no surprise. Also, weekly jobless claims continued to come in at staggeringly high levels at 2.7 million (an error of 200,000 weekly job losses miscounted in Connecticut have been eliminated from the official 2.9 million reading). For those counting, we are now above 36 million on this metric since the pandemic crisis began.

But we don’t need official data to confirm that economic conditions are the worst of our collective lifetimes. This is self-evident. We are all living it. What is more important is the path forward. While I continue to believe we will come out of this crisis, I remain cautious on the anticipated timeline. As will be well known to clients, I continue to expect the path to recovery to be slower and shallower than many believe owing to a variety of factors which I wrote about last week (see here for details). That said, given the market declines seen this week, I am close to adding back some equity (stock) to client accounts in anticipation of the recovery that, eventually, will come.

On China, to my lens, it appears the Trump re-election playbook will be largely predicated upon demonizing China for both the pandemic and its economic policies. I’ll not get into the pandemic blame game here. But, as is well known, the U.S. and China engaged in a 2-year trade war that seemingly culminated in a Phase 1 trade agreement last year. The Trump administration is accusing China of not living up to this agreement. In a possible retaliatory move, the U.S. has threatened overnight to cut off semiconductor chip supply to Chinese behemoth Huawei Technologies. Probably not coincidentally, this threat coincided with an announcement today by Taiwan Semiconductor to open a $12 billion chip factory in Arizona. As most will know, China does not recognize the sovereignty of Taiwan and continues to view Taiwan as a break-away province of greater China. The move by Taiwan Semiconductor could certainly be viewed as symbolically antagonistic. I really don’t want to get carried away with any of these topics other than to highlight that Chinese trade tensions are very likely to become a more dominant story in the months ahead and, to the likely benefit of the Trump campaign, will probably divert some attention away from the Covi19 pandemic crisis.  And, as if markets needed it, it will likely add an additional source of volatility.

That’s it for this week. All the best and stay safe,


Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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