IMPORTANT NOTICE :
NEVER trust wiring or ACH instructions sent via email. ALWAYS confirm with the sender by phone or in-person. Cyber criminals are hacking email accounts and sending emails with fake wiring instructions. These emails are convincing, sophisticated, and often appear to come from someone you know or work with. Always independently confirm wiring or ACH instructions in-person or via a telephone call to a trusted and verified phone number. NEVER wire or ACH money without double-checking that the wiring or ACH instructions are correct.
The Weekly Economic & Market Recap
October 19, 2018
The Chinese economy has numerous headwinds to keep pace with its historical growth rate. Third quarter GDP showed the economy expanded at 6.5% on an annualized basis, the lowest figure since 2009. A vast majority of the slowdown in GDP is domestically driven and is not attributable to the trade war with the U.S at this juncture. Manufacturing, which grew at 6.0% in the second quarter, increased only 5.3% in the third quarter. A major issue facing China is its massive accumulation of debt since the financial crisis. Chinese debt, which was approximately 160% of GDP in 2008 has now ballooned to 266% of GDP. China has approximately $10 trillion of debt in its shadow banking system that is unregulated and highly risky. S&P mentioned this week that local governments have amassed $5.8 trillion in Local Government Financing Vehicles (LGFVs), which are off balance sheet debts to fund infrastructure spending. LGFVs once had the implied guarantee of the Chinese government, which has now been removed. As a result the default cycle has begun and investors have become wary of these investments. Equity weakness is another issue facing China this year. The Shanghai Composite Index is down 28% from its January high. Moreover, 11% of market capitalization is pledged as collateral for loans. If the market declines much further margin calls could force additional selling, which would further weigh on equity returns. On a different note, Chinese 5-yr sovereign credit default swap levels suggest a market view that the Chinese government has the resources to manage the economic turbulence. We will be closely monitoring how this situation evolves.
Click below to listen to this week's Peapack-Gladstone Bank Market Report as heard on WCBS NewsRadio 880.