U.S.-Sino Trade Issues

Overnight we learned that China will dispatch its Vice Commerce Minister Wang Shouwen to the U.S. for low-level trade talks in late August, which will be the first official meeting since earlier negotiations broke down in May.

A translation of the communiqué of the Chinese Ministry of Commerce, which was published on its website reads: "At the invitation of the U.S., Wang Fuwen, deputy minister of the Ministry of Commerce and deputy representative of international trade negotiations, plans to visit the United States in late August, and negotiate with the U.S. delegation headed by U.S. Deputy Treasury Secretary Malpass on the Sino-U.S. economic and trade issues of mutual concern."

Mr. Wang has been the point person within the Chinese Ministry of Commerce for the trade war that has dominated Sino-U.S. relations this year. Mr. Malpass oversees trade in financial services, among other briefs.

That said, this will be the first formal attempt at negotiations between the U.S. and China since Washington imposed tariffs on $50 billion of Chinese goods.

It’s also a fact that this news has added to the dead cat bounce we’ve seen in risky assets after the stabilization in the Turkish lira (TRY) so far this week. On the Turkish situation, one should not forget that the next tool in Turkey’s first-aid kit might be capital controls, which would mean that foreign investors can’t pull their money out of the country at all.

Besides that, the Chinese currency, the yuan (CNY), which has been another big source of market risk has also moved higher on the U.S.-China trade news negating the slowing economy among other things.

Now, as we all know, the White House threat of extending U.S. tariffs on a much larger range of goods than is actually the case, still remains well in the works, which would undoubtfully represent a potential blow to China’s export industry, as the United States tries to pressure U.S. corporations into what’s called “reshoring” production that is also known as onshoring, which is the act of reintroducing domestic manufacturing to a country.

China, from its side, is attempting to appeal U.S. companies by rolling out long-sought investment liberalization measures, especially in the financial services sector.

Interestingly and for the time being at least, China has specifically prioritized access for European and Asian companies, reminding hereby the U.S. of the opportunity costs of trade tariffs.

Jacob Parker, the vice president for China operations for the U.S.-China Business Council in Beijing, said earlier this month that to restart trade negotiations with the U.S. China needs to make an offer that slashes the bilateral trade surplus, lowers import tariffs, provides better protection for intellectual property and stops forced technology transfers.

Long-term investors could do well keeping their calm and take a wait and see attitude and certainly not overlook the fact that the U.S. Trade Representative is simultaneously moving ahead with plans to levy tariffs on $200 billion of Chinese goods.

Public hearings on the proposed tariffs are scheduled to begin on Monday.

Besides that, a lot of controversies, including intellectual property rights protection and government purchases, go beyond the realm of the U.S. Department of Commerce.

U.S. Economic Data

At 8:30 AM EDT the U.S. Department of Commerce released the “Housing starts” and permits data for the month of July that fell sharply and unexpectedly in June, respectively -12.3 percent and -2.2 percent, both to their lowest rates since September 2017. Yet June did show a gain for single-family permits which was the key positive of the report.

July consensus for housing starts is a 1.271 million annualized rate, vs 1.173 million in June, with permits seen at a 1.307 million rate vs. 1.292 million in June (revised upwards from an initial 1.273 million)

At 8:30 AM EDT the U.S. Department of Labor released the “initial jobless claims” for the week of August 11 and that are expected to come in at 215,000 vs. 213,000 in the prior week. All readings in this report are at or near historic lows and consistent with strong demand for labor notwithstanding the ongoing trade tensions.

Forward Path of the Euro

The U.S. dollar index just hit a 14-month high and is up close to about 9 percent from its February low, which seems at odds with the mounting U.S. twin current account and fiscal deficits.

While I still believe these deficits will eventually weigh on the dollar, in the near term, which means three to six months, I wouldn’t be surprised to see the euro falling further to $1.10 per euro.

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