Tuesday, 8 January 2019

While investors watch US-China trade talks, rising defaults in China raises hard landing risk

Markets were mixed on Monday.

The S&P 500 rose 0.7 percent and the Nikkei 225 surged 2.4 percent but the STOXX Europe 600 fell 0.15 percent.

“The backdrop for stocks is positive, with earnings growth still projected to be healthy, while the Fed looks like it is pausing,” said Michael Arone, chief investment strategist for State Street Global Advisors.

Investors also kept an eye on the latest round of trade talks between the US and China, with some noting that the presence of senior officials from China like Vice Premier Liu He could be an optimistic sign.

However, Cliff Tan, East Asian head of global markets research at MUFG Bank, warned that China's economy already faces serious problems.

“Defaults in China in 2018 tripled,” he said. “Now we're seeing that credit itself is growing so fast it may not be possible to engineer a soft landing.”

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