Yuan falls to 11-year low against US dollar; Hong Kong falls into recession due to protests

1. The US-China trade war has many turning points

Entering its second year, the trade warThe trade war between the world's two largest economies is expected to be resolved soon, especially after Donald Trump and Xi Jinping agreed late last year to cease fire to negotiate a trade deal.

However, the actual negotiations were repeatedly deadlocked and dragged on. For months, senior officials from both sides went back and forth between the two countries to try to resolve the bottlenecks. In May, when it seemed like a deal was close, the negotiations collapsed. When the US accused China of reneging on its commitments and raised tariffs to punish it, China raised tariffs in retaliation.

A month later, Trump and Xi announced a resumption of talks, but the talks made little progress. In early August, the US imposed tariffs on another $300 billion worth of Chinese goods. Later that month, China imposed new tariffs on $75 billion worth of US goods, and the US responded by raising tariffs further.

By mid-September, the situation improved again, as the US and China made concessions on tariffs. In mid-October, President Trump announced that the two countries would negotiate a preliminary agreement, with the difficult issues moving to the next phase. Two months later, the US and China reached a phase one agreement in principle, which somewhat eased market concerns.

2. Wall Street continues to hit new highs

In contrast to the worst performance in a decade in 2018, all three major indices of the US stock market, DJIA, S&P 500 and Dow Jones, have set consecutive records this year. The reasons are the US Federal Reserve (Fed) cutting interest rates three times, US corporate profits exceeding forecasts and investors being optimistic about the US-China trade agreement.

The S&P 500 has risen 26% since the start of the year, hitting a record high in five of its nine trading sessions. In mid-November, the DJIA also crossed the 28,000 mark for the first time.

With recent data showing the US economy is still stable, the US stock market is expected to continue to rise. However, the increase next year is likely to slow to just a few percent.

3. Fed cuts interest rates for first time in more than 10 years

In August 2019, the US Federal Reserve (Fed) lowered interest rates for the first time.since 2008, with a 0.25% reduction. Fed officials say the adjustment is necessary to keep the economy strong, especially given their limited tools to fight a recession with interest rates at record lows.

The move has been long anticipated. The Fed has been forced to pursue a more flexible policy this year in response to growing external uncertainty, with trade tensions the biggest concern.

The Fed then cut interest rates two more times this year, in September and October. However, at its December policy meeting, the Fed kept interest rates unchanged and signaled that there would be no adjustment in 2020.

4. Hong Kong falls into recession due to protests

In late October, Hong Kong announced that its third-quarter GDP fell 3.2% from the previous quarter. This was the second consecutive quarter of negative growth for the city, putting the economy in a theoretical recession.

Hong Kong was already suffering from the impact of the US-China trade war and the slowdown in China's economy. Therefore, the protests that have been going on since June, with no sign of ending, have made the situation worse.

Figures show that Hong Kong’s consumption and exports are both plummeting. Life is also getting harder for residents, with transport paralyzed and tourism down. The city government has had to pump tens of billions of Hong Kong dollars into supporting individuals and businesses hurt by the protests.

5. Yuan falls to 11-year low against US dollar

This year, China’s currency has plunged several times due to trade tensions with the US. In August, the yuan fell below the important 7 CNY per USD mark for the first time in 11 years. This development has fueled the risk of a currency war between the world’s two largest economies. Analysts say Beijing could use the yuan as a weapon in the trade war with the US.

Immediately, President Trump criticized China. The US Treasury Department also officially called China a "currency manipulator", for the first time since 1994.

China denied the US accusations, asserting that this development was in line with the market. They continued to devalue their currency for several sessions after that before increasing it again.

6. China's growth slowest in nearly three decades

China's economy continues to face pressure both domestically and internationally this year. The country's GDP in the second and third quarters grew by only 6.2% and 6% respectively - the lowest since the early 1990s..

China is accepting a slowdown to strengthen its financial system and rein in credit. So even without a trade war with the US, the economy is facing a host of challenges, from deflationary pressures (which affect corporate profits) to falling imports (which indicate weaker domestic demand).

Analysts say Beijing will have to roll out more stimulus to stem the slowdown. For now, Chinese authorities have focused on limited, targeted stimulus, such as lowering reserve requirements and interest rates, amid concerns about a debt buildup.

7. Facebook launches Libra, China researches cryptocurrency

In June 2019, Facebook caused a stir when it announced that it would launch a cryptocurrency called Libra, built on blockchain and run by a consortium of dozens of well-known companies – the Libra Association. Of course, like other cryptocurrencies, Libra was enthusiastically welcomed by the tech community, but was met with skepticism by authorities.

Facebook leaders have repeatedly explained and testified before the US Congress, affirming that Libra does not compete with other countries' currencies and will protect personal data. However, the future of this digital currency is still very difficult, as many US congressmen want Facebook to abandon this project. France and Germany have both announced that they will ban Libra in Europe. A series of partners in the Libra Association have also withdrawn.

Still, cryptocurrencies have attracted more mainstream attention this year. Online exchanges like Schwab, E-Trade, and TD Ameritrade have launched Bitcoin futures trading. The People’s Bank of China even announced in August that it would issue a digital currency to replace cash in circulation and support its ambitions to internationalize the yuan. China’s top banks and tech giants will participate in distributing the currency.

8. The year of hardship for billion-dollar startups

2019 was a boom year for the IPOs of a series of unicorn companies (private companies valued at billions of dollars). These were IPOs that investors had been waiting for for a long time. However, the business operations of these companies were not as expected.

Uber, Lyft, and Slack have all struggled to generate profits. Uber lost $1.1 billion in the third quarter, and $5.2 billion in the second. Beyond Meat and Peloton haven’t fared much better. Peloton’s stock dropped 11% in its first trading day, a rarity for a tech startup.

Uber shares are now down nearly 36% since their IPO, while Lyft shares have lost more than 40%. WeWork even had to cancel its IPO plans, as investors criticized WeWork’s valuation, raised concerns about its large losses, the sustainability of its business model, and the management style of former CEO Adam Neumann. SoftBank then had to spend nearly $10 billion to rescue WeWork.

These events have led to growing market skepticism about the profitability of unicorns. Many analysts also believe that the value of these companies is being inflated by labeling them as technology companies, while they are not in fact technology companies.

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