Tags: China | Trump Administration | risk | china | trade | deal | investors

Avoid Risk Amid Rising Uncertainty of China Deal

trump and china's xi

By    |   Thursday, 14 March 2019 12:07 PM

President Donald Trump said yesterday that he was in no rush to complete a trade deal with China and insisted that any accord with Beijing must include protection for intellectual property, a major sticking point between the two sides during months of negotiations, the South China Morning Post reported.

Trump also said that Chinese President Xi Jinping may be cooling on the idea of a summit without an agreement in hand after seeing Trump end a meeting in Vietnam with North Korean leader Kim Jong-un without a peace deal.

Trump’s “Art of the Deal” making, including walking out of meetings like he did in Vietnam, has raised concerns in China about the wisdom of having any meeting at all.

All this increases the uncertainty factor around the U.S.-China trade deal once again albeit only marginally, but which gives us somewhat of another risk-off mood.

The dollar index (DXY) is up to around 96.80 from yesterday’s close at 96.55.

Today, we got U.S. import and export prices. In February, import prices were up by 0.6 percent in February,, after rising 0.1 percent in January and falling 1.4 percent in December. The February increase was led by higher fuel prices. U.S. export prices rose 0.6 percent in February following decreases of 0.5 percent and 0.7 percent the previous 2 months.

Please take note that these prices do not include the effects of the tariffs or taxes on trade. Those taxes are levied on U.S. consumers after the goods have been offloaded of course, but they do show when foreign companies are prepared to absorb some of the tariffs by lowering their prices, or in this case, not absorb the taxes and refuse to lower prices.

Over in the United Kingdom, the interminably tedious process of separating the UK and the European Union (EU) now becomes more interminable. The question is how much more interminable. It goes without saying it cannot become more tedious than it already is.

The UK Parliament has voted against the government’s deal. The UK Parliament has voted against a “No-deal” exit ever.

The UK Parliament is now presented with only two options that are realistically left.

Either Parliament accept the government’s deal and leaves shortly after the current target date. We’ve long held the only way the UK could leave on March 29 was with the government’s deal and that applies to any exit from the European Union shortly after March 29 as well.   

Alternatively, there is renegotiation. If the UK changes its stance, the European Union has indicated it would renegotiate. Clearly, that does not happen quickly, and therefore there would be a lengthy delay to any exit.

There is a vote today on a time limited extension to Article 50, and then a vote on what sort of extension, long or short, will happen next week.

Predictably, financial markets generally like the elimination of the possibility of a No-deal vote.

The British pond is currently around $1.32 and down from yesterday’s close at $1.3338 on, among other things, indications that the Democratic Unionist Party (DUP) that is a unionist political party in Northern Ireland might be considering to support Prime Minister Theresa May’s deal.

One thing that is for sure now and for some time to come is that “Uncertainty reigns” as it is now also said that Prime Minister Theresa May will make a “third” attempt to get her EU withdrawal deal through Parliament next week, the BBC said.

That said, the UK economy will not necessarily enjoy the delay, which could be lengthy, because a delay for knowing the UK’s future relationship with the European Union is a delay for companies making investment decisions. 

Over in Germany, final consumer price inflation came in at an annual inflation rate of 1.5 percent in February, up from an 11-month low of 1.4 percent in January and below a preliminary estimate of 1.6 percent. Prices of energy and food increased faster pace while services inflation was steady. On a monthly basis, the consumer price index went up by 0.4 percent in February, after a 0.8 percent drop in January and softer than a preliminary estimate of 0.5 percent.

By the way, the French yearly inflation number came in at 1.3 percent.

These inflation numbers remain too low to be really supportive for the German as well as the French economies and for the Euro area as a whole.

The euro is back to close to the $1.13 line, down from yesterday’s $1.1327 close.

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

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Trump’s “Art of the Deal” making, including walking out of meetings like he did in Vietnam, has raised concerns in China about the wisdom of having any meeting at all.
risk, china, trade, deal, investors
Thursday, 14 March 2019 12:07 PM
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