Sun, Feb 17, 2019 @ 11:42 GMT

Statement from US and China regarding trade negotiations

    Here is the statement of the US.

    Statement by the Press Secretary Regarding China Talks

    This week, at the direction of President Donald J. Trump, officials from the United States traveled to Beijing to continue negotiations on the trade relationship between the United States and China.  On the United States side, the talks were led by Ambassador Robert E. Lighthizer, the United States Trade Representative, and the Honorable Steven T. Mnuchin, the Secretary of the Treasury.  On the Chinese side, the talks were led by Vice Premier Liu He.  On Friday, both delegations had the opportunity to meet with President Xi Jinping regarding their discussions.  The talks also featured extensive technical exchanges between the professional staffs of both countries.

    These detailed and intensive discussions led to progress between the two parties.  Much work remains, however.  Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff on certain imported Chinese goods.  United States and Chinese officials have agreed that any commitments will be stated in a Memoranda of Understanding between the two countries.

    During the talks, the United States delegation focused on structural issues, including forced technology transfer, intellectual property rights, cyber theft, agriculture, services, non-tariff barriers, and currency.  The two sides also discussed China’s purchases of United States goods and services intended to reduce the United States’ large and persistent bilateral trade deficit with China.

    Next week, discussions will continue in Washington at the ministerial and vice-ministerial levels.  The United States looks forward to these further talks and hopes to see additional progress.


    Here is the statement from China.

    China, US conclude new round of high-level economic, trade consultations

    China and the United States held the sixth round of high-level economic and trade consultations in Beijing from Thursday to Friday.

    Present at the talks were Chinese Vice Premier Liu He, also a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side of the China-US comprehensive economic dialogue, US Trade Representative Robert Lighthizer, and Treasury Secretary Steven Mnuchin.

    The two sides earnestly implemented the consensus reached by the two heads of state during their Argentina meeting late last year, and had in-depth communication on topics of mutual concern including technological transfer, intellectual property rights protection, non-tariff barriers, the service industry, agriculture, trade balance and implementation mechanism; as well as on issues of China’s concern.

    Both sides reached consensus in principle on major issues and had specific discussions about a memorandum of understanding on bilateral economic and trade issues.

    The two sides said they will step up their work within the time limit for consultations set by both heads of state, and strive for consensus.

    They agreed that consultations will be continued in Washington next week.


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    Into US session: Euro weakest, talks on trade talks lift sentiments again

      Entering into US session, Euro is trading as the lowest one for today, followed by Swiss Franc, in relatively mixed markets. New Zealand Dollar is the strongest one while Australian Dollar recovers much of yesterday’s losses. But for now, pre-weekend recovery in Sterling put it into second place. But movements in the currency markets are relatively limited. Thus, the picture could have a drastic change at close.

      US-China trade negotiations were the main focus of the day. Words from both sides were positive, but without much substance. China’s Xinhua news agency said the delegations discussed topics including technology transfers, intellectual property protection, non-tariff barriers, services, agriculture and the trade balance. And both countries reached consensus is principle on a number of issues. They’re working towards a memorandum of understanding on trade and economic issues.

      White House spokesperson Sarah Sanders confirmed that trade talks with China will continue in Washington next week. She said “The United States looks forward to these further talks and hopes to see additional progress.” And,  “Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff on certain imported Chinese goods.”

      US Trade Representative Robert Lighthizer said “we feel we have made headway on very, very important and difficult issues. We have additional work to do but we are hopeful,” Treasury Secretary Steven Mnuchin tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.

      But the development so far seems to be enough to lift sentiments slightly. DOW futures in currently up 76 pts.

      In Europe:

      • FTSE is up 0.55%.
      • DAX is up 1.39%.
      • CAC Is up 1.44%.
      • German 10-year yield is down -0.0032 at 0.104, holding on to 0.1 handle.

      Earlier in Asia:

      • Nikkei dropped -1.13%.
      • Hong Kong HSI dropped -1.87%.
      • China Shanghai SSE dropped -1.37%.
      • Singapore Strait Times dropped -0.41%.
      • Japan 10-year JGB yield dropped -0.0114 to -0.022, staying negative.
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      China Xi: Trade talks to continue in Washington next week

        Chinese President Xi Jinping met US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin at the Great Hall of the People in Beijing today, as the week-long trade negotiations conclude.

        According to a report by the official Xinhua, Xi said that the talks will continue in Washington next week. And he hoped that both sides would reach a mutually beneficial deal.

        Xinhua also reported that Lighthizer and Mnuchin said in-depth discussions were held in the past two days. New progress has been made on difficult issues. But there is still a lot of work to be done.

        Xinhua’s report in simplified Chinese.

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        Ifo: German car exports to US could be halved on new tariffs, but EU could have clever counterstrategy

          The US Commerce Department is set to deliver its recommendation to the White House regarding auto tariffs, meeting a deadline on Sunday. Ahead of that German Ifo institute warned that if US imposes 25% additional, permanent tariffs on cars, that could reduce German car experts to the US by 50% in the long run.

          For Germany, according to Gabriel Felbermayr, director of the ifo Center for International Economics, total car exports could drop by -7.7%, or EUR 18.4B. But, exports from other sectors and to other countries could “slightly cushion” the overall loss. But the net result could still be EUR 11.6B loss of exports.

          Felbermayr adds: “The EU can, however, develop a clever counterstrategy that would bring the effects of US tariffs on the economic performance of both sides to roughly zero. That would be tariffs on US products whose manufacturers would have to react with price reductions. This, in turn, would harm third countries whose economic output could fall by about five billion euros.” All calculations assume adjustment reactions, 90 percent of which take place within five years.

          Full statement here.

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          UK Jan retail sales blew expectations, but store price slowed to lowest since 2016

            UK January retail sales came in much stronger than expected.

            • Including auto and fuel, sales rose 1.0% mom, 4.2% yoy versus expectation of 0.2% mom, 3.4% yoy.
            • Excluding auto and fuel, sales rose 1.2% mom, 4.1% yoy versus expectation of 0.2% mom, 3.1% yoy.

            However, year-on-year average store prices growth slowed to 0.4%, lowest price increase since November 2016.

            Full release here.

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            UK Leadsom: No-deal Brexit is on the table, it’s the legal default position

              UK government’s leader in the House of Commons Andrea Leadsom said the government does not want no-deal Brexit. But it’s there because that is the “legal default position”. And “essentially that is what will happen if we don’t vote for a deal.” She also noted that “What the government is seeking to do is to sort out the arrangements on the backstop so that parliament can vote for the deal. That is the government’s sole focus.”

              Meanwhile, Leadsom also urged EU to compromise on the Irish border backstop. She said “If the EU were to bring on the one thing that they have said they are determined to avoid, that is the risk of the UK leaving the EU without a deal at the end of March and thereby having to have some kind of hard border between Northern Ireland and Ireland. So it simply would not make sense to precipitate such a conundrum when the option of a negotiated arrangement, where the UK could put in place alternative arrangements for the backstop, would be far preferable from everybody’s point of view including from the perspective of the issue of the border between Northern Ireland and Ireland.”

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              US Mnuchin had productive meetings with China

                There is so far no known progress as US-China trade talks conclude in Beijing. US Treasury Secretary Steven Mnuchin just tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.

                On the Chinese side, Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “just wait for a while and the answer will be revealed soon”.

                Mnuchin and Lighthizer will meet Chinese President Xi Jinping later this afternoon.

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                RBA Kent: Markets expect next RBA move to be down than up

                  RBA Assistance Governor Christopher Kent delivered a speech on “Financial Conditions and the Australian Dollar – Recent Developments” today. There he acknowledged that developments in Australian financial markets have been similar to those offshore, with falling equity prices, rising credit spreads and increased volatility. Such development is “a story of risk premia increasing from low levels and were associated with rising concerns about downside risks, both internationally and domestically.”

                  The outlook for domestic economy has “also shifted” with downward revision in both growth and inflation forecasts. And market expectations for the next move in cash rate have “switched signs too”. Kent noted that “markets have assessed that the next move is more likely to be down than up.”. And that’s reflected in lower bond yields.

                  Fall in Australian bond yields is “likely to have contributed somewhat to the modest depreciation of the Australian Dollar of late”. On the other hand, “higher commodity prices appear to have worked to limit the extent of Australian dollar depreciation”.

                  Full speech here.

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                  Trump to delcare national emergency and sign the shutdown averting bill

                    White House spokesperson Sarah Sanders confirmed that Trump will sign the bill that avert another government shut down. However, as the bill doesn’t include the full sum of the funding that Trump demands for the border wall, he’s going to declare national emergency.

                    Sanders said “President Trump will sign the government funding bill, and as he has stated before, he will also take other executive action – including a national emergency.”

                    Top Democrat in the Congress, House of Representatives Speaker Nancy Pelosi said she might file a legal challenge to Trump’s action and “that’s an option”. Senate Democrat leader Chuck Schumer also criticized Trump of a “gross abuse of the power of the presidency.”

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                    US-China trade talks set to conclude without substantial progress

                      Asian equities drop broadly today as the US-China trade talks look set to conclude without substantial progress. US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer didn’t comment on the discussions as the final day of close-door session starts today. But it’s reported that both sides are still far apart on the core issues, which would need a meeting between Trump and Xi to make the agreement.

                      Subsidies on State-Owned Enterprises that create unfair competition is one of the deadlocks as it’s considered fundamental policy of the Chinese government that couldn’t be touched. Reuters reported that China has pledged to adjust the industrial subsidy program to comply with WTO rules. But without any details, the US side, rightfully, is skeptical on enforcement of Chinese government’s promises.

                      White House economic adviser Larry Kudlow fold fox news that “the vibe in Beijing is good.” And, “negotiators in Beijing “are soldiering on”. Kudlow also said meeting with Chinese President Xi on Friday is “a very good sign” and the US delegation is “getting the job done”. Kudlow was “cautiously optimistic” on the outcome. Meanwhile, there is no decision on the trade truce by 60-days yet. But as we argued before, extending the period while keeping the current tariffs is just prolonging the damage to the economies.

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                      US update: Limited loss in Dollar and stocks after terrible retail sales

                        While Dollar and stocks suffered some selling after shockingly poor retail sales data, there was no follow through selling. US retail sales contracted by most in 9 years in December. But some economists are quick to come out to express their skepticism on the data (see here).

                        Bloomberg also reported that US and China are still far apart on the core issues in trade negotiations. In particular, dialing back subsidies for state-owned enterprises is a non-starter for the Chinese government. But this is actually much of a known in Asia.

                        That is, for the Chinese government, buy more American products? Sure. Open up some market access? No problem except some sensitive ones, like internet and media. IP theft and forced technology transfer? Maybe, and they can do something to govern private owned companies. But SOEs? Well, it’s a fundamental government policy that cannot be touched. It’s an area that eventually, the US has to concede. So, this news shouldn’t trigger much pessimism among professional investors.

                        Anyways, Dollar is currently the third weakest one for the day, next to Sterling and Canadian Dollar. Kiwi remains the strongest one. But Yen has already taken the second strongest place, followed by Swiss Franc indicating risk aversion.

                        But as seen in the 4H heatmap, Dollar is the strongest one, followed by Swiss Franc and Yen. The greenback might be staging a rebound.

                        Technically, EUR/USD’s recovery is held well below 1.1341 minor resistance. USD/CHF’s retreated is held above 1.1004 minor support, not to mention 0.9988 structural support. GBP/USD is in near term decline for 1.2391 low. AUD/USD is in consolidation above 0.7054 temporary low. USD/CAD breached 1.3329 resistance to resume the rebound from 1.3068. So all in all, today’s negative news doesn’t trigger much bearishness in Dollar.

                        As for stocks, DOW hit as low as 25308.09 earlier today but it’s back above 25370, just down -0.66. That isn’t too serious. Our own view, as mentioned multiple times before, is that we expect further loss of momentum as DOW approaches 78.6% retracement of 26951.81 to 21712.53 at 25830.60. And the rebound from 21712.53 should complete around that level. However, break of 24883.03 support is needed to be the first sign of near term reversal. Otherwise, we cannot declare we’re correct yet.

                        For now,

                        • DOW is down -0.66%.
                        • S&P 500 is down -0.44%
                        • NASDAQ is down -0.13% only.
                        • 10-year yield is down -0.045 at 2.663, back below 2.7.
                        • 30-year yield is down -0.024 at 3.010, still above 3.0.

                        In Europe:

                        • FTSE closed up 0.28%, thanks to decline in Sterling.
                        • DAX closed down -0.51%.
                        • CAC closed up 0.04% only, erased nearly all early gains.
                        • German 10-year yield is down -0.022 at 0.105. It breached 0.1 handle earlier.
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                        Fed Brainard: Downside risks have definitely increased and gathering

                          Fed Governor Lael Brainard warned that “downside risks have definitely increased relative to that modal outlook for continued solid growth.” She added that back in December, she “had already noted that crosscurrents were increasing and that tailwinds were dying down, and I think that is even more true today because of those downside risks that are gathering.”

                          Brainard pointed to external risks including China’s economy, US-China trade conflicts and Brexit. And, “We are a very international economy… Our financial system in particular has shown itself to be very responsive to earnings abroad, to financial conditions and volatility abroad. So, yeah, I’m very attentive to the international outlook.”

                          Domestically, she believed that momentum has been “pretty solid”. But today’s retail sales numbers “caught my eye”. Though she “didn’t want to make too much” of one month’s numbers.

                          On monetary policy, she’s “comfortable waiting and learning” and the current policy is “in a good place”. And, she would weigh “what move, if any, later in the year”. Meanwhile, she added that the “balance sheet normalization process should probably come to an end later this year”.

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                          Dollar under pressure on shockingly poor retail sales, jobless claims missed too

                            Dollar is sold off sharply in early US session after way worse than expected December retail sales data. Headline sales dropped -1.2% versus expectation of 0.1% mom rise. That’s also the largest decline in nine years since September 2009. Ex-auto sales dropped -1.8% versus expectation of 0.0% mom.

                            Initial jobless claims rose 4k to 239k in the week ending February 9, above expectation of 225k. Four-week moving average of initial claims rose 6.75k to 231.75k, highest since January 27, 2018. Continuing claims rose 37k to 1.773M in the week ending February 2. Four-week moving average of continuing claims rose 9k to 1.750M.

                            Also from the US, headline PPI slowed to 2.0% yoy in January, down from 2.5% yoy and missed expectation of 2.1% yoy. PPI core slowed to 2.6% Yoy, down from 2.7% yoy but beat expectation of 2.5% yoy.

                            From Canada, manufacturing sales dropped -1.3% mom in December versus expectation of 0.7% mom. New housing price index was flat mom in December.

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                            Into US session: Sterling weakest as Brexit debate resumes

                              Entering into US session, Sterling is trading as the weakest one for today as Brexit debate resumes in the Commons. Canadian Dollar follows as the second weakest. Though, Yen remains broadly pressured as the third weakest. On the other, New Zealand and Australian Dollar are the strongest ones for today but both lacks follow through buying.

                              There are talks that investors sentiments are boosted by positive development in US-China trade talks. But we’d like to reiterate that such optimism is not really reflected in stocks and bond markets. Both China and Hong Kong stocks closed lower. Japan JGB yield ended with a decline. German 10-year yield is also currently down. Is a 60-days extension in trade truce something good for the economy? Remember that the current tariffs will likely be in place in case of extension. Such an act is only prolonging the damages.

                              Anyway, it’s still positive that Japan and German avoided recessions in H4 even though the later’s GDP was stagnated. At least Germany was not in contraction back then. Eurozone GDP growth also matched expectation. Focus will now turn to US PPI, jobless claims and more importantly retail sales.

                              In Europe, currently:

                              • FTSE is up 0.43%.
                              • DAX is up 0.26%.
                              • CAC is up 0.66%.
                              • German 10-year yield is down -0.014 at 0.112.

                              Earlier in Asia;

                              • Nikkei dropped -0.02%.
                              • Hong Kong HSI dropped -0.23%.
                              • China Shanghai SSE dropped -0.05%.
                              • Singapore Strait Times rose 0.26%.
                              • Japan 10-year JGB yield dropped -0.0039 to -0.01, staying negative.
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                              BoE Vlieghe: Monetary easing more likely than tightening in case of no-deal Brexit

                                BoE MPC member Gertjan Vlieghe said in a speech that the net balance of economic news for the UK has been to the “downside”. Thus, the appropriate pace of monetary tightening is “somewhat slower” than he judged a year ago.

                                A quarter point hike per year is a “reasonable central case” if global growth does not slow materially further, path to Brexit is in line with government’s state objective, and pay growth continues at current pace. Though, if a no-deal Brexit is avoided, he expects Sterling to appreciate. And the exact degree of future monetary tightening will depend on appreciation of the Pound.

                                However, a no-deal outcome is “likely to lead to some economic disruption, which could possibly be severe”. There are some paths that are possible, but “not all are equally likely”. In his view, “an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.” But he emphasized that BoE will have to “judge in real time” how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.

                                Vlieghe’s full speech “The Economic Outlook: Fading global tailwinds, intensifying Brexit headwinds“.

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                                Eurozone GDP grew 0.2% qoq in Q4, matched expectations

                                  Eurozone GDP grew 0.2% qoq in Q4, unchanged from Q3 and matched expectations. Annually, GDP grew 1.2% yoy. Over the whole year 2018, GDP grew 1.8%. Employment grew 0.3% qoq, above expectation of 0.2% qoq.

                                  EU 28 GDP grew 0.3% qoq, 1.4% yoy. Over 2018, EU 28 GDP grew 1.9%.

                                  Full release here.

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                                  German economy stagnated in Q4, but narrowly escaped recession

                                    Germany GDP stagnated in Q4 and grew 0.0% qoq. But that was enough to narrow escape a technical recession following -0.2% contraction in Q3. Over the year, GDP grew 0.9% yoy in Q4. For the whole year of 2018, GDP grew 1.5% calendar adjusted.

                                    Looking at the details, positive contributions mainly came from domestic demand. Development of foreign trade did not make a positive contribution to growth in the fourth quarter. According to provisional calculations, exports and imports of goods and services increased nearly at the same rate in the quarter-on-quarter comparison.

                                    Full release here.

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                                    China trade balance: Import from US plunged -41%, from EU rose 8.2%

                                      January trade data from China showed a better picture. Exports grew 9.1% yoy versus expectation of -3.3% yoy. Import dropped only -1.5% yoy versus expectation of -10.2% yoy. Trade surplus narrowed to USD 39.2B, above expectation of USD 32.0B. However, it should be noted that the trade data for the first two months of the year are generally distorted by Lunar New Year holidays. Thus, while the data are positive, it’s premature to declare that the slow down in China has bottomed. Nevertheless, it’s worth noting that exports to the US since tariff war began were not so much affected. But import from the US plunged, quite notably in Jan by -41%.

                                      In USD terms:

                                      • Total trade rose 4.0% yoy to USD 396B.
                                      • Import dropped -1.5% yoy to USD 178.4B.
                                      • Exports rose 9.1% yoy to USD 217.6B.
                                      • Trade surplus rose to USD 39.2B.

                                      With EU:

                                      • Total trade rose 12.4% yoy to USD 64.5B.
                                      • Import rose 8.2% yoy to 25.9B.
                                      • Export rose 15.3% yoy to USD 38.6B.
                                      • Trade surplus was at USD 12.7B.

                                      With US

                                      • Total trade dropped -13.9% yoy to USD 45.8B.
                                      • Import dropped -41% yoy to USD 9.2B.
                                      • Exports dropped -2.4% yoy to USD 36.5B.
                                      • Trade surplus was at USD 27.3B.

                                      With AU

                                      • Total trade rose 10.8% yoy to USD 14.4B.
                                      • Import rose 7.6% yoy USD 10.1B.
                                      • Export rose 19.1% yoy to USD 4.3B.
                                      • Trade deficit was at USD 5.8B.

                                      Full country breakdown here in simplified Chinese.

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                                      UK RICS house price balance dropped, resolution of Brexit negotiations critical

                                        UK RICS house price balanced dropped to -22 in January, below expectation of -20. RBIC noted that activity measures for both buyers and sellers continue to slip. Also, price balance weakens at the national level, led by London and the South East. And, as sales drop, the lettings market is faring better with demand rising.

                                        Simon Rubinsohn, RICS chief economist, warned that “resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East where affordability remains stretched and the tax changes are most penal remains to be seen.”

                                        Full release here.

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                                        Japan GDP rebounded with weak momentum, but avoided recession

                                          Japan GDP grew 0.3% qoq in Q3, rebounding from Q3’s -0.6% qoq contraction. The good news is that Japan avoided a technical recession of two consecutive quarters of contraction. But growth was disappointing and missed expectation of 0.4% qoq. GDP deflator dropped -0.3% yoy, slightly better than expectation of -0.4% yoy.

                                          Japanese Economy Minister Toshimitsu Motegi said in a statement that “the economy is in gradual recovery as growth is led by private demand”. However, “China-bound exports of information-related materials have weakened as the Chinese economy slowed”. He added that the government needs to “monitor uncertainty over global economic outlook including Chinese economy as well as fluctuations in financial markets.”

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