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China’s economic headwinds will impact the world

Published

1 year ago

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In recent times, China’s economic health has become a topic of international concern. Often regarded as the world’s second-largest economy and home to over 1.4 billion people,

China is grappling with a slew of issues: sluggish growth, soaring youth unemployment, and a turbulent property market. The situation escalated further when the chairman of Evergrande, a heavily-indebted real estate giant, came under police scrutiny, leading to a suspension of the company’s shares on the stock market.

The question on many minds is how much these troubles in China matter to the rest of the world. While some argue that fears of a global catastrophe are exaggerated, there will undoubtedly be repercussions felt by multinational corporations, their employees, and even individuals with no direct ties to China.

China plays a pivotal role in the global economy, responsible for more than a third of worldwide economic growth. Hence, any slowdown in China’s economic engine will reverberate beyond its borders. Multinational giants like Apple, Volkswagen, and Burberry rely heavily on China’s vast consumer market, and reduced domestic consumption in China will affect these companies and, subsequently, their global suppliers and workers.

However, the idea that China is the sole driver of global prosperity has its skeptics. While China’s economic growth contributes significantly to global figures, it primarily benefits China itself due to its trade surplus. This surplus means that China exports far more than it imports, making its growth more self-contained.

Nonetheless, a China that spends less on goods and services, or on housing construction, translates to reduced demand for raw materials and commodities. This hits countries like Australia, Brazil, and African nations, which heavily depend on exporting such resources. Moreover, weak demand in China results in stable prices, which can be welcomed by Western consumers grappling with inflation.

Over the past decade, China has poured over a trillion dollars into expansive infrastructure initiatives like the Belt and Road Initiative, benefiting more than 150 countries. However, if China’s economic problems persist, its capacity to finance such projects abroad may diminish. This could have lasting consequences, especially for developing nations reliant on Chinese investments and technology for their infrastructure development.

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Money

U.S. small business confidence hits 3-1/2-year peak

US small business confidence hits 3.5-year high post-election, driven by optimism for economy and hiring plans.

Published

13 hours ago

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December 11, 2024

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U.S. small-business confidence reached its highest point in nearly 3-1/2 years in November, according to the National Federation of Independent Business (NFIB).

The NFIB’s Small Business Optimism Index increased by 8.0 points to 101.7, marking the highest level since June 2021.

This surge followed the recent elections, which saw Donald Trump winning the presidential race and the Republican Party gaining control of Congress.

Small business owners, who typically lean Republican, showed increased confidence, a trend anticipated by economists.

Other sentiment surveys also reported improvements in consumer confidence post-election.

Economic improvement

The percentage of small business owners expecting economic improvement rose significantly, indicating a shift in outlook.

More owners believe now is a good time to expand their business, with expectations for higher sales growth increasing. Concerns about inflation slightly lessened, as fewer owners cited it as their primary issue.

Additionally, the uncertainty index for small businesses dropped, reflecting increased stability in economic expectations.

Despite ongoing labor shortages in various sectors, the number of businesses planning to hire rose to the highest level in a year.

Compensation for employees saw an uptick; 32% of owners reported increases, while a notable percentage plans further raises in the coming months.

 

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Inflation report tests stock rally before Fed meeting

**Inflation report next week could impact stock rally; Fed rate cuts anticipated amid strong job growth and resilient economy.**

Published

3 days ago

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December 9, 2024

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An upcoming inflation report will assess the strength of the U.S. stock market rally and influence the Federal Reserve’s rate cut strategy.

The S&P 500 has recorded its third consecutive weekly gain, increasing over 27% year-to-date.

This upward momentum in equities is influenced by expectations of additional Fed interest rate cuts amid a resilient economy.

Friday’s employment report indicated stronger than expected job growth, reinforcing this positive outlook. However, this data is not expected to change the Fed’s rate plans for its upcoming December meeting.

The consumer price index data due on Wednesday may alter this optimistic sentiment if inflation exceeds expectations, posing risks for well-performing stocks.

Experts note that if inflation rates are high, it could create uncertainty for investors before the Fed meeting.

Following the recent jobs report, the probability of the Fed cutting rates has increased, with nearly a 90% chance predicted for a 25 basis point cut.

The consumer price index is expected to rise by 2.7% over the past year.

If CPI results are higher than expected, it might prompt a cautious approach on future cuts, affecting outlooks for 2025.

Additionally, inflation concerns are heightened by the potential introduction of tariffs by President-elect Donald Trump.

Despite these factors, stock prices continue to rise, although there are warning signs of overly optimistic sentiment in the market.

Some analysts maintain a positive view on stocks heading into the year-end, citing a reduction in concerns surrounding the economy and interest rates.

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Money

Stocks on the way to achieve three consecutive years of gains

S&P 500’s strong 2024 raises hopes, but concerns linger over AI sustainability and economic headwinds affecting future gains.

Published

3 days ago

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December 8, 2024

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The S&P 500 has risen 28% in 2024, poised for consecutive annual gains of over 20%.

Major banks forecast more modest returns for 2025, projecting the index reaching 6500, a 6.7% rise from approximately 6090.

Barclays has a more optimistic target of 6600, with Bank of America and Deutsche Bank expecting 6666 and 7000, respectively.

President-elect Donald Trump’s policies are seen as potentially beneficial for stocks, though high interest rates and geopolitical issues pose risks.

Investors remain cautious about the sustainability of the rally.

Economic conditions

Upcoming inflation data will be crucial for assessing economic conditions before the Federal Reserve’s anticipated rate cut in December.

Increasingly, small-cap stocks are joining the rally, with the Russell 2000 index nearing record highs.

More than 220 S&P stocks have hit 52-week highs recently, which indicates broader market strength, making it less susceptible to downturns.

The early market gains were largely driven by major tech stocks, which continue to perform well amid various challenges.

Long-term growth expectations, however, appear dim, with forecasts suggesting limited gains over the next decade.

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