Trump comments in the Oval Office:
- Johnson’s win the UK is a harbinger for US elections
- 25% China tariffs will be used in phase two talks
Nothing new here so far.
Archives of “December 13, 2019” day
rssUSTR clarifies which US tariffs will be rolled back
Statement obtained by Politico
USTR press statement: “The United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.”
The tariffs that will be rolled back were imposed on Sept 1. The USTR also said the deal is ‘enforceable’.
This is good news but not nearly as good as reports yesterday about a 50% rollback on $360B in tariffs.
US stocks markets fell back into negative territory.
Full statement:
Euphoria fades as phase on trade deal details revealed
Some details still murky
USD/JPY is at the lows of North American trade and back to flat on the day.
It appears as though China has balked at putting a specific number on US agricultural and manufacturing purchases, something the US had previously demanded. The problem for China is that putting a specific number on buying US agricultural goods would violate WTO rules. It also risks forcing them to buy US agriculture even if US prices are higher than elsewhere.
That might have caused some last-minute changes to the deal and a smaller tariff reduction. Yesterday’s reports said a 50% reduction on $360B of tariffed goods. Now it’s a 50% reduction on just $112B in goods.
I think risk assets still probably creep higher from here because it’s the time of year when stocks tend to benefit from a Santa Claus rally with tax-loss selling done. The UK election also removes a big uncertainty.
Chinese diplomat: A trade deal with us needs mutual respect, equality
Comments by Chinese diplomat, Lu Kang, on trade
This is a similar message to what the foreign ministry delivered earlier today here.
Part of me thinks that they are hinting at something – perhaps they still don’t see the tariffs exchange for their firm commitments as being on equal terms. But it could also be just some neutral messaging in trying not to reveal anything just yet.
If we do see a trade deal struck, I reckon both sides will be able to keep a trade truce for a good few months – or even up to a year – but eventually, either one will start alluding to the other “not living up to the bargain” and that is when the war begins again.
Your guide to the US-China trade war
All eyes on 15 December
December 15 is an important deadline: on this date, the US authorities scheduled to impose the new tariffs on Chinese goods. That is a major reason for the remaining global economic tension. Below, we will examine why it is so, what the consequences for the global market are and how you can turn that in your favor in your trade activities.
Why US-China relations are important for everyone?
Two elephants in the room
The global Gross Domestic Product as of 2018 may be divided into two parts: 40% is the contribution of the US and China with 25% and 15% respectively, and 60% for the rest of the world.
That means, almost half of the globe’s output is the combined result of the US and China.
Next, China is enjoying one of the highest GDP growth ratesin the world: the map below shows the countries with higher than 6% economic growth in red, while those with less than 2% are marked in green.
Source: IMF
We see that most of the developed countries, including the USA, are in yellow. These countries are at their maximum expansion capacities at this stage. Moreover, they face the risk of gradually lagging behind. In the meantime, China with its huge demographic and natural resources still has miles ahead to advance in leaps. Metaphorically, it is the same as if the American economy was moving in a carriage and the Chinese was driving an automobile. For the other countries, it means that the disparity between those two giants and the rest of the world in terms of production output will solidify in the nearest future. It is also necessary to point out that during the past years investors got pretty used to China’s economic outperformance. As a result, the signs that this automobile’s advance became bumpy have dramatic effect on the market sentiment.
The fragile balance
On top of that, China is the largest exporter in the world by value. Its prime trading partner is the United States, which consumes around 20% of the Chinese exports. That means that the two economies are closely tied to each other, and a minor misbalance in one’s economy inevitably affects the other one. The latter is confirmed by the recent data: due to the two-year trade conflict, China is already reaping the negative effects significant even on historical charts. A similar picture starts looming in the US, although the level of gravity is not as high. Not yet, at least.
It means that the American and the Chinese economies, as big as they seem, are also very sensitive to each one’s movements.
On the other hand, most of the other countries list the US and China as their prime trade partners due to the vast consumption and production of the latter. What stands as a minor trade volume for the US or China, will be the main or a major part of the trade balance for any other state. Any redistribution of forces will shake the countries like Germany or Australia, although these themselves are the wealthiest and strongest economies in the world.
The conclusion from the arguments above is the following: the US and China will stay the biggest and grow stronger in the nearest future, and the rest of the world will stay exposed to their unchallengeable economic domination.
In other words, when the US or China sneezes, the world trembles.
How did trade tensions influence the financial market?
The trade war has started in March 2018. At that time, the price of the US dollar against the Chinese yen was at the levels of 6.28 after a long-term downward trend that had continued through 2017 and the beginning of 2018.
This is the approximate chronology of the conflict:
1. March – December 2018: escalation, aggressive mutual tariffs imposition
2. January – March 2019: on hold, trade truce
3. April – June 2019: escalation, aggressive tariffs imposition and additional side measures
4. July: on hold, official ceasefire and trade talks
5. August – October 2019: escalation, further tariffs imposition and media war
6. November 2019: on hold, phase-one trade agreement and tariffs exemptions
As in any conflict, this trade war had periods of different conflict intensity. Some were full of high-intensity action from both sides, the others showed pacification and deliberate ceasefire. The chart below puts the USD/CNH price action and the trade war activities on the same table, so we can see how the trade war dynamics have been impacting the currency pair.
We see that the conflict escalation phases coincide with the periods of appreciation of USD against the CNH, while the conflict pacification phases show the currency pair decline. The same is visible in the Awesome Oscillator window.
The reason behind that is the following. The more intense the crisis was and the more uncertain the future seemed for the market participants, the more the US dollar was demanded by investors as a resort to conserve their funds with a safe-haven currency. Conversely, when things were going back to normal, the optimism of the market participants was supporting a more risk-accepting mood and hence the demand for the Chinese yuan grew.
Bond yields retreat a little on the session
Treasury yields have slipped back lower in the past hour
US 10-year yields are down to a session low of 1.88%, retracing some of the move higher since yesterday. Notably, yields are down by ~3 bps in the past hour alone. It is a similar story for European bond yields as well.
It could be hints of profit taking ahead of the weekend as investors square up their bond positions so I reckon this is just something to take note of for now.
Equities are still keeping cheerful and that is helping to leave USD/JPY underpinned at 109.61. Let’s see if there is anything more to the move here in the next couple of hours and if it will spill over to other asset classes.
BOJ quarterly Tankan report out now – manufacturing mood worsens
Bank of Japan survey is of manufacturing and service companies designed to assess business conditions in Japan
The main Q4 results:
Large Manufacturing Index: 0
- est 4, prev 5
Large Non-Manufacturing Index 20, improving!
- est 16, prev 21
Large Manufacturing Outlook 0
- est 3, prev 2
Large Non-Manufacturing Outlook 18
- est 16, prev 15
China has agreed to buy USD50bn in ag products in 2020 (sources)
China trade news following this earlier:
- China, US have agreed to some tariff reductions and a delay on tariffs set to go into effect on December 15
- China has agreed to make $50 billion in agricultural purchases in 2020
Headlines via Reuters, the wire citing a source familiar with the situation.
So yeah, as expected the trade ‘deal’ is pretty much a nothingburger except for China buying a few soybeans and what have you (that they need anyway). As tipped miany, many times over past months.
Cable climbs to highest level since June 2018 as exit poll forecasts big win for the Conservatives
GBP/USD climbs above 1.34 and is perhaps looking at the 1.35 level now
The pound has surged ahead with a jump of nearly 300 pips on the headline earlier and is now possibly looking towards the 1.3500 level against the dollar next.
Looking at the chart, price is running into some resistance from the 61.8 retracement level @ 1.3453 though so perhaps that may help to limit gains for now.
Going into the exit poll, my bias was that an overwhelming majority should see cable run up the March highs of 1.3381 and the 1.3400 level. I reckon perhaps we could see price action consolidate around these levels amid some retracements over the next hour.
But if anything, keep an eye on resistance at 1.3453 and the key psychological level – 1.3500.
The exit poll has had a prescient track record in recent years but do be reminded that this year the election may be one of the tightest ones yet. As such, we’ll see how the actual results compare and if there is more potential for further moves in the coming hours.
Just remember, it is not over until the fat lady sings (actual results declared).
UK election: Exit poll forecasts a big Conservative majority
The exit poll points to a strong majority win for the Tories
The poll forecasts the Conservatives to win an outright majority of 368 seats. The pound has jumped on the headline here with cable surging well above 1.3370.
The breakdown:
