Archives of “October 14, 2019” day

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Tariffs being imposed Dec.15 if no China trade deal, says Mnuchin

  
  Analysis
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U.S. Treasury Secretary Steven Mnuchin said on Monday that an additional round of tariffs on Chinese imports will likely be imposed if a trade deal with China has not been reached by then, but added that he expected the agreement to go through.

“I have every expectation – if there’s not a deal, those tariffs would go in place – but I expect we’ll have a deal,” he said in an interview with CNBC, when asked about a round of tariffs scheduled for Dec. 15.

U.S. President Donald Trump said on Friday that China and the United States had reached the first phase of a trade deal that covered agriculture, currency and some aspects of intellectual property protections, and would ease the reciprocal trade restrictions that the world’s two largest economies have been imposing for 15 months.

But officials on both sides have said more work is needed to finalize the accord, and Trump acknowledged the agreement could still collapse. U.S. Trade Representative Lighthizer said on Friday that Trump had not made a decision about the December tariffs.

Mnuchin said more trade negotiations at various levels would take place over the coming weeks, including a phone call between himself, Lighthizer and Chinese Vice Premier Liu He, and talks between Trump and Chinese leader Xi Jinping.

Asked about a dispute between China and the U.S. National Basketball Association stemming from a tweet by Houston Rockets manager Daryl Morey expressing support for pro-democracy protests in Hong Kong, Mnuchin said he hoped the two sides could come to a solution.

European shares end the day with mixed results

  
Analysis, Global Indices

Some of the major indices are higher and a few are lower

The major European indices are ending the day mixed
  • German DAX, +0.3%
  • France’s CAC, +0.4%
  • UK’s FTSE, +0.5%
  • Italy’s FTSE MIB, -0.3%
  • Spain’s Ibex, -0.5%
In the European debt market, the benchmark 10 year yields are moving back to the downside after positive moves at the end of last week (especially in the UK yields).  The UK 10 year yield is leading the way to the downside after hope for a Brexit deal with the EU started to fizzle over the weekend.  The UK 10 year yield is down -7.0 basis points.
Some of the major indices are higher and a few are lower

Mnuchin: Progress made last week. Phase 1 deal is substantial

  
  Analysis

Speaking on CNBC

  • China will step up agricultural purchases
  • There needs to be a dispute resolution enforcement provisions
  • has every expectations that if US China trade deal is not in place December 15 tariffs will be imposed, but expects a deal
  • dispute resolution mechanism is important
  • There is a fundamental agreement in principle. There are still some issues that need to be worked out. But we have every expectations that phase 1 will close
  • The deputy level calls this week.  Lighthized and Mnuchin will make a call to vice premier next week.
  • NBA must work out China deal on its own
Mnuchin put on his best face on the deal which he typically does, in what will be a long drawn out process. However, there are some things that need to be done and agreed to, that will make or break the progress just in Phase 1.  Stocks are still lower but marginally higher from the start of his speech.

China premier Li Keqiang: Downward pressure on economy is increasing

  
  Analysis

The usual comments via state media

Liq Keqiang
  • Will keep economic operations within reasonable range
  • Overall economy is generally stable
  • Will make good use of counter-cyclical adjustments
Just be wary that these comments are coming just ahead of the Q3 GDP report release on Friday this week. Could it be a hint that economic growth managed to hold out above 6.0% in the third quarter?

Trump: Big sanctions on Turkey are coming

  
  Analysis
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Trump tweets out a message to Turkey

Brian Kilmeade over at @foxandfriends got it all wrong. We are not going into another war between people who have been fighting with each other for 200 years. Europe had a chance to get their ISIS prisoners, but didn’t want the cost. “Let the USA pay,” they said.

Kurds may be releasing some to get us involved. Easily recaptured by Turkey or European Nations from where many came, but they should move quickly. Big sanctions on Turkey coming! Do people really think we should go to war with NATO Member Turkey? Never ending wars will end!

This is related to the strikes in the northern part of Syria last week. The lira has fallen on the tweet as USD/TRY is making new highs for the day around 5.9350 from 5.9200 levels earlier.

Will China GDP matter more to assets than any US-China deal?

  
  Analysis
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Via Bloomberg

China
The title of this post was a good question on Bloomberg’s Markets live blog at the end of last week. Mark Cranfield phrased the question as follows:

China’s 3Q GDP is due Oct 18 and it could be the first time on record that it prints below 6%. That could have a greater long-term impact on assets than a partial trade deal. Especially, as Bloomberg Economics expect policy makers to step up stimulus in response to stabilise the mainland economy.

If so, will that make China equities an asset class that become less correlated to the direction of Wall Street and global stocks? Would it trigger an asset swicth away from China bonds that spills over to other fixed income markets?

My assessment is that Firstly.  China’s GDP growth is going to be slowing due to reasons of growth. It is not the norm for developed countries to have double digit growth in the GDP. As China joins those developed nations it is only normal that GDP slows in pace.
Secondly, on a more general note, I think that the US-China deal matters more than the GDP figures. No deal – bad GDP would have been the worst outcome. With the US and China together making up 40% of the world’s GDP and the US on it own about 25% a good deal between those two countries should ultimately put positivity back into asset classes. It feels like the disaster outcome has avoided for now.
What is your take on it?

Singapore loosens monetary policy for first time in 3.5 years

  
Analysis, Economy
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Singapore has moved to loosen its monetary policy for the first time in three-and-a-half years to help offset slowing economic momentum due to prolonged U.S.-China trade tensions.

As a small, heavily trade-dependent economy, the country has been heavily exposed to the tariff battle between two of its largest trading partners. Exports have been falling at a double-digit pace from last year’s levels.

The Monetary Authority of Singapore, the central bank, said in its semiannual policy statement Monday that it would slightly decrease the slope of the Singapore dollar’s exchange policy band, a move to guide a weaker appreciation of the local currency.

The nation’s monetary policy is based on its exchange rate whereby the Singapore dollar is managed against a basket of currencies representing the country’s major trading partners.

With this move, Singapore follows regional peers such as Indonesia, the Philippines and India, all of which have eased monetary policy by cutting interest rates in recent months.

Singapore’s adjustment comes as trade-related industries stagnate under pressure from the U.S.-China standoff, though economists say domestically focused sectors have held up better. (more…)

Goldman Sachs says yuan to decline further after the trade tension pause

  
Analysis, Forex

The investment banks sees USD/yuan to 7.20 in 3 and 6 month time horizons.

  • 12 month view is 7.10
In brief:
  • short-lived pauses in trade tensions have in the past given way to renewed escalation rather than a roll-back of the trade war
  • If anything, disagreements have spread to more dimensions — technology, financial flows, immigration and foreign policy — such that finding ramps to de-escalate is even harder.
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