07 May 2019
US-China trade war
Negotiations over a potential US–China trade arrangement have taken an unexpected turn for the worse over the last 24 hours, after President Trump threatened to reintroduce a previously delayed plan to raise tariffs on $200bn worth of Chinese imports from 10% to 25%. These possible moves were confirmed by US Treasury Secretary Mnuchin and Trade Representative Lighthizer, who suggested that these would be enacted at 12:01am (US time) on Friday.
Additionally President Trump’s tweets also introduced the spectre of the US introducing a 25% tariff on the remaining $325bn of Chinese imports, which to date have been unaffected by the previous tariff rounds. It is not entirely clear what was at the root cause of the about turn, but US suggestions were that the Chinese were attempting to renegotiate previously agreed parts of the agreement. High level talks were scheduled for this week, with Chinese Vice Premier Liu due to visit Washington on Wednesday and Thursday. Media reports now suggest that these will still go ahead a day later, but it is not clear whether the Chinese delegation will be as large as previously planned
UK this week
The optimism at the end of last week that a Brexit deal between the Tories and Labour might be coming to a favourable conclusion, has faded. The Sunday Times reported at the weekend that the Conservatives were (and still look) set to offer new concessions to Labour when talks restart today, including a temporary customs union with the EU until the 2022 election (alongside temporary regulatory alignment and more on workers’ rights).
However Labour is upset that details of the compromise under discussion have been leaked and that certainly looks to make for a sour start to the resumption of such talks today. Meanwhile PM May is reportedly looking at how she might hold a second Brexit vote, if she runs out of road on other options. UK PM, Theresa May, has faced increased pressure on her own personal survival with Tory leadership hopefuls continuing to grapple to take over and put more pressure on May to detail her timetable for departure. Needless to say this has been a further complication in progressing Brexit talks with Labour this week.
On the data front Q1 GDP will be front and centre of the domestic agenda. We expect the economy to have recorded a robust 0.5% (qoq) pace of growth in the first quarter. This in part looks to be driven by Brexit related stockpiling, particularly in the manufacturing sector and as such we suspect there may be some payback in Q2. Released alongside the GDP numbers will be the monthly sector detail for March, as well as trade balance figures.
US & China this week
The positive risk sentiment that coloured global markets in recent weeks has all but disappeared over the weekend as negotiations over a potential US – China trade arrangement have taken an unexpected turn for the worse over the last 24 hours, after President Trump threatened to reintroduce a previously delayed plan to raise tariffs on $200bn worth of Chinese imports from 10% to 25%. Certainly any end to the trade dispute between the US and China would be taken as a positive.
Markets are however walking a tightrope in terms of sentiment, with stronger economic numbers potentially stoking fears of a return to policy normalisation. China is a key example of this, where investors will be carefully watching the trade and lending numbers which are due next week. Any beat on expectations could actually exacerbate the Shanghai Composite’s 5% fall since 16 April, given that it could raise market fears over Beijing reining in its stimulus measures. April CPI inflation figures are due on Friday and are likely to gain some attention given the Federal Reserve’s acknowledgement of low inflation in last night’s FOMC statement and press conference. Fed Chair Powell is also due to speak at 13:30 on Thursday.
Europe & ROTW this week
Within the Euro area the big news over the past week was the upside surprise in Q1 GDP, where growth was recorded at +0.4% qoq, above the +0.3% consensus. A rebound in industrial production looks to have played a part in this, and national data for March, released next week should shed some more light on the sector’s performance (figures are due from Germany, France and Italy). In Australia we had the RBA’s rate decision last night where they decided to leave rates on hold at 1.5%. Meanwhile decisions will also be due from the RBNZ and the Norges Bank later in the week.
10.00 EZ EU Economic Forecasts
12.00 US FOMC Member Kaplan Speaks
15.00 US JOLTs Job Openings
16.35 US FOMC Member Quarles Speaks