Xi Jinping’s U.S. Visit Overshadowed by the Pope – the pontiff grabbed all the attention this week in his first visit to the United States. Pope Francis’ candid and often politically charged views provoke thought and unsettle politicians across the spectrum, which might be a good thing. But, perhaps the more impactful visit was made by China’s leader, Xi Jinping. During his stay, he and President Obama announced what could become the world’s first arms control agreement for cyberspace, with China and the U.S. each promising to refrain from being the first to use cyber-weapons to cripple the other’s critical infrastructure during peacetime. It would cover attacks on power stations, banking systems, cellphone networks and hospitals, but would not protect against cybercrimes (what matters most today): widespread poaching of U.S. corporate intellectual property and the theft of millions of U.S. government employees’ personal data.
Microsoft Gets In on the China Action Too – Microsoft inked deals with China in a victory towards its ever-insatiable quest to do business with the Far Eastern superpower. During Xi Jinping’s visit to Seattle, Microsoft announced that its Chinese cloud partner, 21 Vianet Group Inc., is planning to work with a Chinese chip-maker to sell cloud services to China state-owned enterprises – a potentially huge deal. Microsoft is also exploring ways to implement and maintain a “localized” version of Windows 10 for Chinese government and state-owned enterprises operating critical infrastructure.
Not All China News was Positive, Though – China’s manufacturing activity for September fell short of analyst expectations, which were already low given recent weakness. China’s PMI fell to 47 (anything below 50 signals a contraction), which marks the lowest level notched since March 2009. Additionally, the Asian Development Bank lowered its growth forecast for China to 6.8% on the year, from “around 7%” as indicated by the government. What’s important is that, even with 6.8% growth, the second largest economy in the world would still be contributing a tremendous amount to global GDP. Don’t let China weakness stir much worry.
German Bugs – The largest carmaker in the world, Germany’s Volkswagen, was entrenched in scandal. It was revealed that they aimed to cheat U.S. tests for nitrogen-oxide emissions by including software in their cars designed to detect when a car was being tested and adjust emissions to “beat” the test. It is estimated that 11 million cars worldwide could be affected, and VW has already set aside $7.3 billion for legal costs. The stock has plummeted, having fallen more than 30% at one point in the week. CEO, Martin Wintercorn, quit on Wednesday. Could be rough times ahead for Volkswagen.
Hold ‘Em Steady, For Now – St. Louis Federal Reserve President James Bullard (a notorious hawk) spoke firmly this week regarding the Fed’s recent decision to hold interest rates steady yet again: “Why do the Committee’s policy settings remain so far from normal when the objectives have essentially been met? The Committee has not, in my view, provided a satisfactory answer to this question.” We tend to agree with him. The economy, while not growing astronomically, has still been on a growth path for almost six years. Additionally, unemployment is below 6%, inflation is in check and corporate profits, excluding-Energy, are doing just fine. Yet, the Fed still has cold feet in terms of raising rates. It’s a head-scratcher. We’re not sure if it’s possible to take this at face value but, for what it’s worth, Fed Chair Yellen indicated in a speech this week that she thinks rates will go up by the end of the year. She stated: “most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Sounds convincing, but the fear of commitment is still there – she continued by saying “but if the economy surprises us, our judgments about appropriate monetary policy will change.”