Not that stock market bulls needed any more encouragement, but the deal announced in Madrid by the US and China on TikTok’s US operations being taken under American ownership is a breakthrough which not only encourages ideas of further trade goodwill but gives yet another boost to US tech stock outlook. Given that this “framework” has been a real deal breaker for the US, for it fears national security intrusion from the popular app, Washington appears to be so cock-a-hoop that it readily announced a phone call would take place this Friday between Presidents Xi and Trump to finalise the barter. The S&P, Nasdaq and Gold all made all-time highs and have encouraged the Nikkei to emulate them this morning. Equities and those that see rate cuts gave no quarter to the news from the US appeals court’s rejection of President Trump’s attempt to be rid of FED Governor Lisa Cook. Whatever the dot plot might be from the FED, investors are happy to make their own. Oil prices enjoy the faltering state of the US Dollar and remain encouraged by the threat posed to Russian exports by Ukraine drone attacks. However, it is safe to say our market remains quietly cloistered and awaits an event or fundamental change to break the sideways action.
 

Despite domestic flu, the Dragon keeps its oil appetite

There is an edge of seriousness rather than bonhomie as the China-US trade talks convened this week in Madrid. Although both sides agreed last month to temporarily reduce tit-for-tat punitive tariffs and agree on a 30 percent US levy on China and 10 percent one in reverse, the talks are very much aimed at trying to reach a long-term agreement before the ninety-day deadline, for the current standoff expires on 10th November. As noted above, a breakthrough in talks comes from a framework for deal in which TikTok’s US operations will be transferred to American ownership. Judging by the data set China’s National Bureau of Statistics released yesterday, it would be in the Asia giant’s interest to breed certainty into a backdrop of a shifting relationship. NBS chief economist Fu Linghui told a news conference after the data publication, "In the domestic market supply is strong, demand is weak, and some enterprises are facing operational difficulties. There are still much instability and uncertainty in the external environment, and economic performance still faces numerous risks and challenges". 

The January to August year-on-year Fixed Asset Investment in China increased by only 0.5 percent which is not only lower than the expected 1.4% but is also lower than the same period in 2024 of 1.6%. Such a fall in investment sharply brings back that any growth seen in the front part of 2025 was to front-run the impending tariffs that the US might invoke, as promised by the then incoming Donald Trump. Trade wars and geopolitical peril, alongside an economy that is in the throes of stagflation (last week PPI fell 2.9 per cent year-on-year in August) is cause enough for investors in China to once again refrain from risk, which includes an overall year-to-date slump of 12.9 percent in real estate investment. 

When addressing China, one can never be too far away from how house prices are faring. The incredible spending spree on, and oversupply that followed, in the housing sector has turned into an incredible drag on not only any efforts to apply stimulus, but to the greatest market mover of all, sentiment. The house price debacle has not seen any reprieve for nearly five years. Refinancing plans, relaxation of second home mortgages and in general easier terms for house purchasing have yet to provide relief from not only stagnation but multiple year-over falling values. China’s August House Price Index fell 2.5 percent against an expectation of a negative 2.8 percent reading, but the slight improvement belies the real state of play. NBS data as seen on Bloomberg, shows resale home values falling 0.58 percent from July, quickening from a 0.55 percent decline a month earlier. New home price in seventy cities, excluding state-subsidised housing, dropped 0.3 percent almost matching that of the previous month’s 0.31 percent slide.

The final pair in this message of data doom are Industrial Production and Retail Sales. Industrial growth year-on-year grew by 5.2 percent, lower than the 5.7 percent call with a similar miss in Retails Sales being 3.4 percent versus 3.8 percent. If there are fewer buyers, why produce more? Goldman Sachs opined, “the slowdown in retail sales growth was mainly due to weaker demand for home appliances and electronics, as the boost from Beijing’s consumer goods trade-in subsidies started to fade.” Therefore, without further centralised economic assistance, China is in very real danger of missing its 5 percent GDP target for 2025. 

Where this becomes very interesting and possibly alarming for our market is, and as pointed out by CNBC, one of the biggest laggards in consumption was petroleum. China is importing way more feedstock than its needs for domestic use and even eventual refined fuel international custom. We noted last month how Reuters are quick to calculate China’s lopsided oil balance and once again it serves up an opinion piece outlining how the situation has grown. Using NBS data, the news and analytical organisation points out Crude oil imports were 11.65mbpd in August and domestic output at 4.3mbpd. With China’s refiners processing 14.94mbpd in August, the Crude surplus is now 1mbpd, double that of July’s. China’s oil demand does not constitute a strength in investment, in industry, in what is bought in shops or house prices. It derives from a willingness to keep ploughing feedstock into its billion plus barrel storage for strategic purposes. When this tank filling might end Vladimir Putin must be keen to know, his war finances depend on it. We share an opinion with many others that demand will eventually be found from lower prices, China’s stockpiling is an example of it. However, for the Asian giant to continue in its avarice for Crude, and for others to find their buying legs, prices must keep falling.

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