Archives of “January 16, 2020” day

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Text of Phase One trade deal is balanced, fair – Chinese analysts

  
  Analysis

Global Times reports, citing commentary by Chinese analysts on the matter

The report says that local experts believe that the Phase One trade deal reflected what Chinese officials have been stressing – that any agreement must be balanced and fair.

On the $200 billion purchases of US goods, a director of the Chinese Academy of International Trade and Economic Cooperation’s foreign trade institute said that “this should not be too difficult”. Adding that:

“Price of these US products are very competitive so we can’t say China has been taken advantage of.. The agreement also includes terms about the US ensuring market supply, which could mean the US lifting bans on chip exports to China. If that is the case, there is huge potential as China imports $300 billion worth of chips each year.”

Further commentary can be found in the report here.
I think the more important thing to note is the sentiment surrounding the Phase One trade deal. So far, the Chinese media is painting a more positive response and outlook to all of this – which lends to more calm and relief for markets in general.

IEA warns that Iraq oil supply is potentially vulnerable as Middle East tensions flare

  
Analysis, Crude

IEA comments in its monthly report

Oil
  • Iraq oil supply potentially vulnerable amid rising political risks in the region
  • US-Iran tensions and Iraqi protests had only minimal impact on oil operations
  • But fragile situation may limit Iraq’s plans to expand oil production capacity
  • That may make it difficult for global industry to meet rising long-term demand
For some context, Iraq is the second largest oil producer in the Middle East and pumped 4.59 million bpd of oil in December. That said, the OPEC+ pact still requires them to cut around 130k bpd to meet the compliance quota.
However, even with Iraq and all of OPEC+ reaching full compliance, IEA forecasts that the world market still faces a surplus of about 800k bpd in 1H 2020.
That kind of landscape makes it a tough situation to see oil prices significantly higher this year and could suggest that we have already seen the highs for the year amid US-Iran tensions over the past two weeks.

Details of phase one deal released as Trump and Lui He sign documents

  
  Analysis
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Trump and Lui He sign deal

Trump and Lui He sign deal
  • Agreement prohibits misappropriation of trade secrets through electronic surveillance
  • Require forfeiture of machinery used to produce counterfeit goods
  • Agreement effective 30 days after signing
  • Deal calls for $200 billion in added Chinese purchases of US goods above 2017 levels
  • Lighthizer says it is not administrations intention to wait until after November elections for phase two deal
  • Lighthizer says only way for further tariff reductions is a phase two deal
  • China to import no less than $12.5B above 2017 baseline for agricultural goods in 2020 and +$19.5B in 2021
  • Market conditions, particularly in the case of agricultural goods ,may dictate the timing of purchases within any given year
More purchase details:
  • China to buy $12.8B more in services this year, $25.1B in second year
  • To buy $18.5B more in energy this year, $33.9B in second year
  • To buy $12.5B more in manufactured goods this year, $44.8B in second year
  • The outline of this was leaked yesterday
Those are some big numbers. I would love to see more details on what China plans to buy, especially in something less-fungible like manufacturing.

Huge data dump due from China on Friday – Q4 GDP and December activity

  
Analysis, Economy

Due at 0200GMT on 17 January 2020

China Q4 GDP

  • expected is +6.0% y/
  • prior was +6.0%  y/y

And for the whole of 2019:

  • expected +6.2% y/
  • prior was +6.2%  y/y

Quarterly GDP from China rarely strays far from expectations.

Monthly activity data, for December 2019, not too much change expected from the previous month:

  • Industrial Production y/y expected 5.9%, prior was 6.2%
  • industrial production YTD y/y expected is 5.6%, prior was 5.6%
  • Fixed Assets (excluding rural) YTD y/y, expected 5.2%, prior was 5.2%
  • Retail Sales y/y, expected 7.9%, prior was 8.0%
  • Retail Sales YTD y/y, expected 8.0%, prior was 8.0%

Moody’s on the phase 1 US-China deal – will not resolve core differences

  
  Analysis
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Moody’s downbeat not only on the trade deal …

  • says outlook for APAC corporates remains negative in 2020 amid slowing global growth and trade policy uncertainty
  • “while positive, the US-China trade agreement will not resolve core differences, dampening business sentiment globally”
  • global economic growth will remain lacklustre, with growth in the US and China decelerating to 1.7% and 5.8% respectively in 2020
  • expects major central banks, including US Fed ECB, & BOJ will maintain accommodative monetary policies

Dunno, at least until the November US election we can expect US-China differences to be swept under the carpet? Or, maybe not?

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APAC is Asia-Pacific in case you are wondering.

3 big doubts on the phase 1 US-China trade deal

  
  Analysis
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The Financial Times flags concerns that business have with the trade truce signed by the US and China

  • left billions of dollars of US tariffs on Chinese goods in place
  • doubts about whether the truce will stick
  • a desire for US officials to complete the work by extracting further structural concessions from Beijing
The piece does say, more positively that the risk of a new escalation in tariffs and tension in the near term – and possibly even until after the November 2020 presidential election – is lower.
  •  there is still broad concern in corporate America that the truce is fragile and limited. If the Trump administration believes that China is not living up to its commitments, it could quickly and unilaterally move to impose new tariffs on Chinese goods, leading to a new escalation.
Yep … this is not over, as we all know.
FT link, may be gated.

Reuters Tankan – Japan manufacturers sentiment index -6 (unchanged from December)

  
Analysis, Economy
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The monthly Reuters Tankan is more timely than the quarterly report of the same name from the BOJ.

  • January manufacturers’ sentiment index comes in at -6 (unchanged from Dec)
  • Service-sector index +14 in January vs. flat vs Dec
  •  Manufacturers’ mood seen up ahead, service sector down
Pessimism amongst Japanese manufacturers persisted in January, usual suspects cited:
  • China-U.S. trade tension
  • sluggish global demand
Looking ahead though,  some believed conditions will improve in the next few months
  • seen to 0 in April
Service-sector outlook sees 13 in April (slight fall)
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