Sino-US trade discussions remained a key feature for markets last week, with little developments on the Phase 1 agreement. The US senate’s Hong Kong Human Rights bill, which Trump says he will take a “good look at”, will no doubt damped further talks. China’s President Xi Jinping says the nation would like to work on a trade deal on the “basis of mutual respect and equality”, especially considering China “didn’t initiate this trade war”. In a bid to move trade talks along, China announced it would look to raise penalties on IP violations. Officials are also expected to lower the threshold for criminal prosecutions for IP theft as the nation strives to reduce frequent violations by 2022, according to Bloomberg. As we quickly approach the 15th December, the date when the US is expected to add another 15% tariffs on Chinese goods, concerns are mounting over whether a “Phase 1” deal will be agreed.
Staying with China, rating agency Fitch affirmed its A+ long term rating for China, with a stable outlook, citing: “robust” external finances, strong macroeconomic performance and China’s size as the world’s second-largest economy. In terms of concerns, Fitch noted “structural vulnerabilities” within China’s financial sector, relatively low per capita income, and weaker governance compared with similarly rated nations. However, unlike many other A rated nations, Fitch noted that China has sufficient room to accommodate a short-term rise in its budget deficit until external pressures diminish. Unchanged from its September estimates, Fitch forecast China’s growth to fall to 5.7% in 2020, from 6.1% this year. Its forecasts are based on the assumption that all current US tariffs including the new 15% tariff, due in December, are in place. Thus, growth could actually beat the rating agency's estimates if a deal is reached to roll back some of the tariffs already in place and/or if China manages to convince Trump to reconsider implementing the next stage of tariffs.
In the US, preliminary PMI figures for November surprised to the upside and sentiment prints also showed continued confidence. US Treasuries enjoyed a 6bps rally to close the week at 1.77%. The DXY was up 0.28%. With the upcoming US election less than a year away and campaigning well underway, we heard Micheal Bloomberg is running for president. The previous NYC mayor announced his democratic candidacy saying “I offer myself as a doer and a problem solver — not a talker”. On the subject of elections, the Conservative party released it manifesto, on the launch, Boris said the party would “get Brexit done” and “forge a new Britain”. With less than three weeks until the UK general election, and university staff on strike over pensions and pay, all eyes will be focused on what is being labelled the Brexit election.
This week’s top events include Fed Chair Jerome Powell's speech later today, following his meeting with Trump, Thanksgiving on Thursday, and Black Friday. In addition, China is looking to launch another bumper government bond issue touted at $6bn. In terms of data release, German IFO and the Chicago Fed National Activity (expected at -0.20) will be watched closely. Alibaba is due to make its trading debut on the Hong Kong exchange on Tuesday, while the European Investment Bank discusses “Striving for competitiveness and inclusion: what policies for Europe?” at its annual conference. US wholesale inventories, consumer confidence and housing sector data will be out on Tuesday with the Beige Book, GDP, durable goods and personal income and spending prints released on Wednesday. A relatively quiet Thanksgiving Thursday will see Japan’s retail sales figure, and Lebanon is due to repay a $1.5bn eurobond. Black Friday will see the BBC host the UK’s seven party leaders. Also of interest will be GDP readings from the likes of India and France, Chile’s unemployment and copper production prints, and UK’s mortgage approvals.