January 10, 2019

Turmoil in China Dominates

The markets reacted sharply last week to Apple's announcement about its poor earnings outlook. As part of that announcement, the company cited weakness in the Chinese consumer market.

Since then, Apple CEO Tim Cook has been speaking about how the company plans to focus on its specific business issues rather than spending time worrying about the macroeconomic environment. Cook did say that he believes the macro economy will work though its current troubles, such as trade tensions and slower global growth.

With China dominating the economic news just after the New Year, it's hard not to think that 2019 will be a pivotal year for that country.

Granted, the size and importance of its economy means that China plays a critical role in the world economy every year. But this is the year when it seems likely that the clash of U.S. business and political ideologies will come to a head, as U.S. demands shift from buying U.S. goods to intellectual property rights and China's industrial expansion policy.

As trade negotiations continue, China also faces seriously contentious domestic issues. Its stock market was one of the worst in the world last year. China has been trying to diffuse its debt time bomb, which is related to its corporate borrowing and shadow banking system. Another eye-popping data point is that auto sales for 2018 in China dropped for the first time in two decades.

But how does China's economic and domestic situation impact business owners? Are they adjusting prices? Setting up new supply chains?

In late 2017, we surveyed clients about doing business internationally and they listed concerns about trade tensions near the top of the list. We will be doing another survey this year and I am eager to hear what businesses have done to cope with the reality of the world in 2019. We'll make sure to share those results with you when we have them.

Finally, last week we put out a little quiz on the foreign exchange markets. We had several responses and most were pretty accurate. The most commonly missed question asked what was the most volatile currency of 2018. Many thought it was the British pound, which was a good guess, since everything having to do with Brexit kept pushing the pound all over the place. Actually, however, the most volatile currency last year was the Argentine peso.

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