Tags: china | trade | talks | deal

Drawn-Out China Trade Talks Only Inflate Hopes for Blockbuster Deal

Drawn-Out China Trade Talks Only Inflate Hopes for Blockbuster Deal

By    |   Monday, 11 November 2019 09:59 AM

New York Fed President John Williams said the U.S. economy is in a good place, and reiterated hereby his view that the interest rate cuts made this year should appropriately address the potential risks of the trade war with China and a global economic slowdown, Reuters reported.

Globally, we are going to be focusing on trade.

President Donald Trump’s Twitter feed has offered few clues on trade and instead was focused on the impeachment process. Trump said on Friday that there had been no agreement on a phased roll back of trade tariffs with China.

Nonetheless, and this could be important for investors, the prolonged nature of the U.S.–China negotiations is raising hopes of a broader deal being done.

Trump on Tuesday will be speaking to the Economic Club of New York, which could create some volatility in the financial markets because of the ongoing trade negotiations/tensions with China.

This event, along with any interim tweets as well as Federal Reserve Chairman Jerome Powell’s testimony before Congress on Wednesday and Thursday are likely to be a focus for financial markets.

Besides that, Chinese consumer price inflation in October caught attention by rising 3.8 percent year-on-year, up from 3.0 percent in September. Soaring pork prices that has been caused by an outbreak of the deadly African swine fever have pushed overall food-price inflation up to a more than eleven year high. Pork prices have risen by over 100 percent year-over-year in China.

The threat of global transmission of this to wider consumer price inflation rates elsewhere in the world is close to nil.

China is not a significant food exporter, so there is no direct effect. While global prices for unprocessed pork have risen on increased demand from China, this is not especially relevant to consumer prices elsewhere in the world. Pork is between 2 and 3 percent of China’s consumer price inflation basket. Pork is less than 0.3 percent of the U.S. consumer price inflation basket and U.S. pork consumer prices are rising about 1.5 percent on the year.  Pork is even less relevant to, for example, the UK’s consumer price inflation basket where prices are falling year-over-year.

The importance of the cost of processing food stuffs to consumer prices in countries like the U.S. allows for this to happen.

Meanwhile, the just released GDP date of the UK show a 0.3 percent growth rate in the third quarter, recovering hereby from a 0.2 percent contraction in the previous three-month period, but below expectations of a 0.4 percent expansion. Nevertheless, the UK avoids hereby recession. The service and construction sectors provided positive contributions to GDP growth, while output in the production sector was flat. Business investment contracted again in the third quarter. Private consumption, government spending and net trade all made a positive contribution to growth.

Like everywhere else, Trump’s trade policy has added uncertainty and global risk to investment in the manufacturing sector in particular.

In addition, for the UK there is the overlay of the interminably tedious UK_EU divorce process. Investment is likely to take place if the proceedings ever come to conclusion. However the style of investment is likely to depend on the nature of the UK-EU divorce and post-divorce arrangements. Firms are unlikely to choose to invest in advance of knowing the direction of travel.  

Finally, Spain’s general election on Sunday has seemingly produced no conclusive result. The governing socialist party has the largest number of seats but is projected to lose three (3) relative to the old parliament.

An inconclusive result was expected by financial markets and should therefore not be a huge surprise to anyone, however, some people my focus on the rise and support for the far right “Vox” party, which is likely to be the third largest party in Spain.

I wouldn’t read too much into what that may imply for politics elsewhere in the European Union (EU) as the reason for the Vox party’s increase in support seems to have been more local, the BBC reported.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The prolonged nature of the U.S.–China negotiations is raising hopes of a broader deal being done.
china, trade, talks, deal
Monday, 11 November 2019 09:59 AM
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