U.S. tariff hikes, also known as consumer tax increases, appear to be taking a back seat for now, perhaps waiting for the implementation of the tariff hikes on imports from China on Monday.
It seems that when President Donald Trump threatened an "immediate" response to any Chinese retaliation, Trump did not mean that the response would be immediate.
What the president actually meant is now a topic of some speculation because the taxing of U.S. consumers (if they go anywhere near Chinese goods whatsoever) is something that will matter to markets and to the wider economy.
In the meantime, China said it is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, in a move that will lower costs for the Chinese consumers. That news was confirmed by Premier Li Keqiang who said that China would further reduce the tariffs, without elaborating on the subject.
Cutting duties on goods even when China retaliates against Trump’s trade war with higher charges on some U.S. goods, China is following through on its long-stated goals to boost imports. The move comes as it is trying to stimulate domestic consumption to support a slowing economy and follows hereby similar cuts to tariffs in July on a wide range of consumer goods.
The Chinese currency, the yuan (CNY) remained stable on the news.
In the interminably tedious process of separating the European Union (EU) and the UK, ‘things’ are not progressing or, if they are progressing, it’s at such a tedious pace that no one can tell.
Markets had been veering towards the idea that all is for the best in this best of all possible worlds.
Last night’s ‘informal’ EU leaders’ summit in Salzburg, Austria, which looked a lot like a ‘formal’ EU leaders’ summit concluded with UK Prime Minister May saying that the European Union’s proposals on Northern Ireland were not acceptable. Prime Minster May said that a border on the Irish Sea was “simply not acceptable.”
The assorted EU Presidents, of which the European Union has an abundance (27), suggested that a ‘deal’ on divorce was still ‘some way away’.
The good news is that another ‘formal’ EU leaders’ summit, which will look a lot like an ‘informal’ EU leaders’ summit, is scheduled for mid-November.
Anyway, I personally still expect that a ‘deal’ will be done, but the UK position on the Northern Irish border is not something that is likely to alter very much. In the meantime, there will be noise.
The British pound has been taking the news relatively calmly.
Emerging Markets – Turkey Presents its New Economic Program
The Turkish lira (TRY) has been generally fairly stable in recent days, certainly compared to earlier turbulence.
Treasury and Finance Minister Berat Albayrak presented today Turkey’s Medium-Term Economic Plan (OVP), which was renamed as New Economy Program (YEP) and that revised targets for inflation and growth. The main theme of the three-year program for 2019-2021 period is “balancing, discipline and change.”
Some excerpts of the Finance Minister’s plan are interesting for helping investors to check Turkey’s objectives. The plan says:
- We will be balancing the economy, so our 2019 growth target will be 2.3 percent. It will be 3.5 percent in 2020 and 5 percent in 2021 to create a sustainable growth.
- Our inflation target for 2018 is 20.8 percent. It is 15.9 percent for 2019, 9.8 percent for 2020 and 6 percent in 2021.
- Starting from today, we are taking some precautions to use public resources more efficiently. We will save 60 billion Turkish Liras in 2019.
- Decreasing our current account deficit will be another focus for us.
The Turkish lira (TRY) quotes practically unchanged from where it closed on Wednesday.
I think that investors could do well remaining with both feet on the ground. Markets are looking for a normal policy framework, which would allow Turkey to grow sustainably. Growth fueled by credit is not something that will be viewed as sustainable for Turkey.
We are no longer in a low-interest rate world and investors have alternative investments earning positive returns where they can put their money if they are uncertain about the sustainability of any country’s policy path.
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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