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Make Investments Keeping an Eye on Trade, Brexit

brexit separation negotiations nuts and bolts
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Thursday, 28 March 2019 11:49 AM Current | Bio | Archive

We just got the release of the revised fourth quarter real GDP growth data.

It came in at an annual rate of 2.2 percent.

This is down from the initial estimate of 2.6 percent.

Current dollar GDP increased 4.1 percent, or $206.9 billion, in the fourth quarter. In the third quarter, current-dollar GDP increased 4.9 percent — or $246.3 billion.

The Federal Reserve's favored inflation measure, the PCE price index, increased 1.5 percent, compared with an increase of 1.6 percent. Excluding food and energy prices, the PCE price index increased 1.8 percent, compared with an increase of 1.6 percent.

Meanwhile, the dollar index DXY continuous on its strengthening path at 97.1280, up from yesterday’s close at 96.7740.

Yesterday in the U.S., we got the trade data for January. It showed what it was likely to reveal. Therefore investors could do well keeping in mind that speculation on a U.S. - China trade deal really ramped up at the start of the year.

U.S. companies that in fact are paying trade tariffs had a strong incentive at the beginning of the year to delay importing goods from China as long as possible, in the hope that President Donald Trump’s tariffs would be lifted.

In fact, why should anyone pay a tariff now when there will probably be no need to pay a tariff, let’s say, in a couple of months?

Ironically, President Donald Trump’s trade tariffs worked to reduce imports only when there was a belief that the tariffs will be lifted.

For example, U.S. imports from China were 46,013.5 million dollars in December, which diminished by 9.5 percent to 41,603.8 million dollars in January as informed by the U.S. Census Bureau.

Of course, the U.S.-China trade negotiations still drag on.

Talks continue today and tomorrow with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin in Beijing.

This will be followed by another round in Washington next week.

In this context, Reuters reports that a U.S. administration official said that China has put proposals on the table (in the talks) that went further than they have in the past, including one on technology transfer.

The official added, "If you looked at the texts a month ago compared to today, we have moved forward in all areas, but we aren’t yet where we want to be. They’re talking about forced technology transfer in a way that they’ve never wanted to talk about before, both in terms of scope and specifics."

The official additionally said that talks would continue as long as progress is being made on core issues, and that the negotiations could go into May, June — no one knows. 

Investors could do well keeping in mind that President Donald Trump told Republican lawmakers on Tuesday he will not settle for less than an "excellent deal" with China.

Also keep in mind that the U.S. and China are working on written trade agreements in six areas:

  • Forced technology transfer and cyber theft,
  • Intellectual property rights,
  • Services,
  • Currency,
  • Agriculture, and
  • Non-tariff barriers to trade.

In the meantime, in the interminable UK-EU divorce things get more and more complex by the day.

Hereafter is a summary of the most significant things that have come out from the so-called eight "indicative" votes on Brexit "options" that were yesterday voted on in the UK Parliament — whereby all eight were defeated by MPs (members of Parliament), and that have caused hereby a stalemate situation, (for now at least):

  • UK Prime Minister Theresa May will resign if the government’s withdrawal agreement succeeds, but Prime Minister Theresa May will not resign if the government’s withdrawal agreement fails.

  • UK opposition leader Jeremy Corbyn of the Labor Party will back a second referendum if his party remains in opposition, but he will not back a second referendum if the Labor Party would be part of the government.

The UK Parliament has now indicated a rejection of the government’s withdrawal agreement, a rejection of leaving without an agreement, a rejection of leaving without any alternative solution, and a rejection of having another referendum.

In short, the UK Parliament has rejected "everything."

For now, the most likely scenario would appear to be a lengthy delay to the exit.

Meanwhile, the British pound is at $1.3132, down from yesterday’s close at $1.3189.

For now, with all the uncertainty surrounding Brexit, I think it's better for investors to not take firm positions on the British pound.

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

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The U.S.-China trade negotiations still drag on. In the meantime, in the interminable UK-EU divorce things get more and more complex by the day.
dxy, gdp, eu, uk
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2019-49-28
Thursday, 28 March 2019 11:49 AM
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