On the horizon next week – vote in US Congress to sanction China officials over human rights abuse

The US House (lower house of the Congress) plans to vote next week on moves to impose sanctions on Chinese officials over human rights abuses against Muslim minorities

  • the bill was approved by the Senate on May 14
This is in relation to the internment of more than 1 million Uighurs and members of other Muslim minority groups in the Xinjiang region of China
This is another indication of rising US/China strains. As these increase they tend to be a negative input for financial market risk assets (and FX) and supportive of safe haven alternatives. Add it the growing list, recent examples:
  • China will not back down from “US quickening technology war mongering” – warn of “ample countermeasures”
  • US to add 33 Chinese firms, institutions to an economic blacklist – accusation of helping China spy, links to WMDs
  • US accuses China government of blocking US airlines flying to China
  • US administration is suspicious of China nuclear weapon tests – may do so too

And, of course:

  • coronavirus origin and spread
  • trade
  • tension over new rules from Beijing to be imposed on Hong Kong
  • Taiwan

China confirms 80% tariff on Australian barley

The news that China was to impose an import tariff on Australian barley broke back on May 10

The tariff imposition has been announced in a statement from China’s Ministry of Commerce
  • anti-dumping tariff would be 73.6 per cent
  • while the anti-subsidy tariff would be 6.9 per cent
  • will remain in place for five years
This from China is in retaliation for Australia leading calls for an investigation into the origin and spread of COVID-19. China also halted imports of Australian beef last week as part of their response.
 The news that China was to impose an import tariff on Australian barley broke back on May 10 

German parliament backs EU750B crisis spending package

That’s a big number

Germany’s parliament approved aid for smaller firms and the self-employed. It includes a 156B euro supplementary budget.
That’s a huge number. Germany’s GDP is one-fifth of the US which just unveiled an enormous $2 trillion package. In relative terms, this is much bigger. That said, the details matter. Parts of both programs are loan guarantees and those don’t necessarily cost anything because they will be paid back.

11 Wuhan residents traveling back from abroad were found infected with the coronavirus

The Global Times conveying the report citing China customs

  • 11 Wuhan residents traveling back from abroad were found infected with the novel coronavirus as of 6 am Tuesday
Well, that’d suck.
So, its probably reasonable to say that some of these folks (likely all of them) headed away from Wuhan while inflected but not showing any symptoms, and by the time they returned began to show symptoms (fever, for example).
Its probably also reasonable to think they have infected others while away.

IMF: Growth is worse but at least uncertainty is lower

IMF lowers 2019 global growth estimate for the sixth straight quarter

IMF lowers 2019 global growth estimate for the sixth straight quarter
2019 is over but the outlook for growth keeps getting worse. The IMF lowered its 2019 global growth forecast to 2.9% from 3.0% in October. It was the sixth consecutive cut to the 2019 outlook.
The 2021 forecast was also lowered to 3.4% from 3.6%.
On the upside, the IMF maintained its 2020 GDP forecast at 3.3% and said that economic uncertainty is diminished with risks “less skewed” toward negative outcomes, albeit still tilted to the downside.
The big loser in this round of forecasts was India with the 2020 forecast cut to 5.8% from 7.0% on declining credit growth.
Other highlights:
  • 2020 Eurozone GDP seen at 1.3% vs 1.4% in Oct due to manufacturing contraction in Germany
  • Boosts China 2020 GDP to 6.0% from 5.8% on trade deal
  • Cuts 2020 US GDP to 2.0% from 2.1%
  • UK forecast unchanged at 1.4%
For me, these forecasts don’t have much value on their own (as you can see from the frequent revisions) but they are a valuable way to visualize and interpret the evolving growth picture.

US Treas Sec Mnuchin says tariffs on China to remain in place until phase 2

US Treasury Secretary Mnuchin

  • says tariffs will stay in place until there’s a phase 2 of china trade agreement
  • says Trump may consider removing tariffs under phase 2
  • says China has made strong commitments it will not manipulate currency

US Treasury Secretary Mnuchin 

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.

Global stock market rally has further to run in 2020 – Reuters poll

But much depends on the US-China trade war still


The bias has turned more favourable in the most recent poll with a slim majority of respondents (53/102) viewing that risks to the outlook are now skewed more to the upside.

In comparison, just three months ago, a clear majority of respondents (69/97) viewed that risks to the outlook were skewed more to the downside instead.
A lot of this of course owes to the more optimistic US-China trade rhetoric, as both countries look to move closer towards a trade truce by the end of this year.
Among those who answered an additional question in the poll, 50 respondents said the bull run in the stock market will end within a year with 40 respondents saying that it would within the next two years.
That shows that sentiment is leaning more towards the bull run still going strong although I reckon its strength may not be as what we are seeing this year.
I mean with stretched valuations, flagging global growth and more political uncertainty i.e. US elections all at play next year, the S&P 500 may find it tough to post another 25% year like this one and so will its peers.

Pres. Trump has not yet decided to rollback tariffs with China

Says China would like to have them rollback

  • Has not yet decided on rollback of tariffs with China
  • Says he isn’t concerned about anything on impeachment
  • Says he won’t fully rollback China tariffs
  • Says he could sign it trade deal with Xi in Iowa
  • Says he plans to sign any China trade deal in the US
  • Says China wants make a deal
  • I am very happy with taking in billions of dollars from China in tariffs.
The comment that he won’t FULLY rollback China tariffs is open to interpretation.
  • Does it mean that he won’t initially fully rollback the tariffs?
  • Does it mean he will be reluctant to rollback all the tariffs over time?  The President does have a tendency to like to get back what was taken.  He also thinks the tariffs are paid by China directly.
  • Does it mean, there will be some rollback initially. Peter Navarro said earlier that the December 15 tariffs would be postponed on a Phase I  deal, but the existing tariffs would remain to encourage Phase II and Phase III talks to proceed

India makes historic blunder in abandoning RCEP trade deal

It is hard to view India’s decision to abandon the Regional Comprehensive Economic Partnership trade deal, or RCEP, as anything other than a historic blunder.

At Monday’s ASEAN Summit in Bangkok, Prime Minister Narendra Modi was expected, after years of grinding negotiation, to sign up to the 16-nation agreement. Instead, he told fellow Asian leaders that India was out.

The result will frustrate RCEP’s remaining members — the ten nations of ASEAN, alongside Australia, Japan, New Zealand and, most significantly, China — all of whom hoped India would join.

But the real loser will be India itself. Modi’s government now sits outside both of the trading blocs that will define Asia’s future: RCEP and the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Modi’s decision makes China the overwhelmingly dominant voice in a new deal, which, with India included, covered around a third of global gross domestic product. More to the point, it sends alarming signals about India’s commitment to both trade and domestic economic reform more broadly.

In private, Indian officials say RCEP’s terms remained unfavorable. Joining risked a flood of cheap Chinese imports in sectors like electronics. India had tried and failed to win substantial concessions in areas like work visas for its software outsourcing sector.

To be fair, signing up did come with risks. India ran a $58 billion trade deficit with China in 2018. That could well have increased if India jumped into RCEP but failed to introduce complementary reforms to boost domestic competitiveness. There were legitimate worries about import surges from China’s state-dominated economy too.

Having negotiated hard for years, however, India had already won concessions, including implementation delays stretching into decades and safeguards to protect sensitive sectors like agriculture. Over recent months it appeared as if Modi’s officials were trying to join, deciding that RCEP was in India’s economic and geopolitical interest. Continue reading »