· The dollar edged lower against a basket of currencies on Friday as news of an initial China-U.S. trade deal and an election victory for Britain’s Brexit-backing Conservative Party appeared to clear the fog on the global investment horizon, hurting safe-haven demand for the greenback.
The United States and China cooled their trade war, announcing a “Phase one” agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm products and other goods.
The United States would suspend tariffs on Chinese goods due to take effect on Sunday, and reduce others, officials said. A deal is expected to be signed the first week of January in Washington by principal negotiators.
China agreed to aim to purchase $50 billion in farm products a year, United States Trade Representative Robert Lighthizer told reporters at the White House on Friday.
The dollar index, which measures the greenback against six major currencies, was down 0.18% at 97.22, after slipping as low as 96.719.
Johnson’s win will allow him to end three years of political paralysis and take Britain out of the European Union in an orderly manner in a matter of weeks.
The pound was up 1.31% at $1.3335.
· U.S.-China trade deal cuts tariffs for Beijing promise of big farm purchases
Details emerged Friday from the U.S.’s first-stage trade deal with China, which marked a milestone in President Trump’s initiative to rebalance trade with Beijing but left questions over how far it goes to level the playing field for U.S. businesses.
The limited agreement, capping months of sometimes-testy negotiations, calls for China to purchase more products from American farmers and other exports, U.S. officials said. In return, the U.S. put the brakes on new tariffs set to take effect Sunday and agreed to reduce some existing levies. Both sides termed it a “phase one” deal and said negotiations would continue on remaining issues.
But doubts remained, with some critics claiming the deal amounted to little more than China agreeing to step up U.S. farm purchases and not make the kind of long-term economic changes that U.S. officials have said are needed to level the playing field for businesses.
“He has sold out for a temporary and unreliable promise from China to purchase some soybeans,” Senate Democratic leader Chuck Schumer of New York said.
As part of the deal, the U.S. canceled plans to impose fresh tariffs on $156 billion in annual imports of Chinese-made goods—including smartphones, toys and consumer electronics—that were set to go into effect Sunday. The U.S. will also slash the tariff rate in half on roughly $120 billion of goods affected on Sept. 1, from 15% to 7.5%.
U.S. tariffs of 25% would remain on roughly $250 billion in Chinese goods, including machinery, electronics and furniture. In exchange, officials in Washington said China agreed to increase American agricultural purchases by $32 billion over previous levels over the next two years.
That would increase total farm-product purchases to $40 billion a year, with China working to raise it to $50 billion a year, U.S. Trade Representative Robert Lighthizer told reporters at the White House. The farm purchases would be part of total additional exports of $200 billion over two years, said Mr. Lighthizer, who didn’t provide specifics.
Mr. Lighthizer also said China made specific commitments on intellectual property, including counterfeiting, patent and trademark issues and pharmaceutical rights, as well as on preventing the forced transfer of technology from firms entering the Chinese market. He and Chinese Vice Premier Liu He are expected to sign the deal in early January, with the pact entering into force 30 days later, Mr. Lighthizer said.
· Trade war: China halts introduction of new tariffs on US goods
China said on Sunday it will not impose new tariffs on imports of American products, but added that the ongoing negotiations between the two countries must proceed on the basis of equality and respect.
The announcement came after an interim agreement was reached on Friday to prevent a further escalation of the trade war, which has been running since July 2018.
Beijing had threatened to introduce tariffs of 5 and 10 per cent on selected US goods at noon on Sunday, but that move had been halted, the Customs Tariff Commission of the State Council said in an online statement. It also said that US cars and car parts would continue to be exempted from existing duties.
· U.S. Treasury Secretary Steven Mnuchin said on Saturday a “phase one” trade deal between the United States and China was “very good” for global economic growth, and added that the second phase could come in several steps.
The United States and China cooled their trade war on Friday, announcing a “phase one” agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.
Mnuchin said full details of the new deal, or a factsheet on “phase one”, would come out later on Saturday or on Sunday after both sides do fact and language checks.
“We expect it will be fully executed in January. And then we get to ‘phase two’,” Mnuchin told the Doha Forum conference in Qatar. “The most important issue is - lets make sure we implement ‘phase one’ with an enforceable agreement, which it is. And then we start negotiating ‘phase two’.
· China and the United States’ “phase one” trade agreement is good news for all and will “provide stability in global trade”, the Chinese government’s top diplomat Wang Yi said during a visit to Slovenia on Saturday.
He said, however, that there were still many issues between the two sides that needed to be addressed.
According to Wang, who spoke in Chinese, the agreement “will help to shore up confidence in (the) world economy”.
“China never believed that resorting to tariff hikes is the right way ... because there is no winner in a trade war,” he said, adding his country was opposed to protectionism.
· China plans to set a lower economic growth target of around 6% in 2020 from this year’s 6-6.5%, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.
Chinese leaders are trying to support growth to limit job losses that could affect social stability, but are facing pressure to tackle debt risks caused by pump-priming policies.
The proposed target, to be unveiled at China’s annual parliamentary session in early March 2020, was endorsed by top leaders at the annual closed-door Central Economic Work Conference this month, according to three sources with knowledge of the meeting’s outcome.
· China is poised to take the lead in blockchain after it was given strong backing by the country’s leader President Xi Jinping, experts told CNBC. The move could allow the world’s second-largest economy to control the development of the nascent technology in the absence of competition from other regions like Europe and the U.S.
Blockchain refers to a technology which began with the cryptocurrency bitcoin. In that case, its role was an immutable and tamper-proof public ledger of activity. It was also “decentralized,” which means it was not owned by any one party.
The definition of the technology has since evolved as it started being applied to areas like finance. Other terms such as “distributed ledger technology” or DLT are now often used in these cases and they bear differences to the original bitcoin blockchain. But the promise of a system in which transactions can happen across a single record aimed at authentication is still attractive.
· Fed policymakers see U.S. economy on good footing
The U.S. economy is doing well and looks set to stay that way next year, two top Federal Reserve policymakers said on Friday, remarks that suggest they are content to leave interest rates where they are.
“I think the economy is in a good place. U.S Federal Reserve Vice Chair Richard Clarida said in an interview with Fox Business Network, adding that the consumer has never been in better shape. “We have the strongest labor market in 50 years, we have low and stable inflation, we have solid growth and our baseline outlook for the economy is more of the same in 2020.”
Speaking to students and faculty earlier in the day at the Borough of Manhattan Community College, New York Fed President John Williams summed it up this way: “The economy is performing about as well as we have seen in decades.”
Williams and Clarida work closely with Fed Chair Jerome Powell, who on Wednesday announced the U.S. central bank’s well-telegraphed decision to hold interest rates steady in a range of 1.5% to 1.75%, and signaled borrowing costs would remain there for the foreseeable future.
· U.S. retail sales increased less than expected in November as Americans cut back on discretionary spending despite a strong labor market, raising fears the economy was slowing a bit faster than anticipated in the fourth quarter.
Retail sales rose 0.2% last month. Data for October was revised up to show retail sales increasing 0.4% instead of climbing 0.3% as previously reported.
The report from the Commerce Department on Friday bucked a recent raft of fairly upbeat data on the labor market, housing, trade and manufacturing that had suggested the economy was growing at a moderate speed in spite of headwinds from trade tensions and slowing global growth.
· The Conservative Party will form the next U.K. government with a strong majority.
Labour leader Jeremy Corbyn is to step down.
The first stage of Brexit now looks on track to happen at the end of January.
Five lines of action he must simultaneously pursue to find his historic place.
- Most importantly, he’ll have to negotiate a “no-tariffs, no-quotas” trade deal by end-2020 with a European Union that he has disparaged, knowing that it by some distance is the U.K.’s major trade partner.
- Second, he will have to rapidly restore external economic confidence in a country that has been suffering disinvestment, an economic slowdown, and doubts about its continued role as a European and global financial hub.
- Third, he should still aspire to get a trade and investment deal with an impeachment-distracted President Trump. At the same time, he should share with voters how unlikely that will be and embrace what might be faster and easier opportunities in Asia, namely negotiating his way into the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Fourth, he’ll have to abandon much of the populist rhetoric that got him elected and embrace his encouraging “One Nation” message of this week that could heal the country’s divisions – and perhaps also slow a European-wide and global populist trend.
- Finally, he’ll need save the United Kingdom from unraveling by convincing Scotland and Northern Ireland of their future place – while heading off another Scottish independence referendum. A successful EU negotiation will help that.
· Scotland’s first minister, Nicola Sturgeon, warned Prime Minister Boris Johnson on Sunday that he could not keep Scotland in the United Kingdom against the country’s will.
Johnson and his government have repeatedly said they will not give the go ahead for another referendum on Scottish independence, but Sturgeon said after the Scottish National Party won 48 of Scotland’s 59 seats in the UK parliament, her party had been given a mandate for one.
· Oil prices extended gains on Friday, scaling three-month highs as the United States and China moved closer to a resolution to the 18-month trade war between the world’s two biggest economies that has raised big questions about global demand for crude.
Brent futures climbed 43 cents, or 0.7%, to $64.63 a barrel by 0426 GMT, its highest since Sept. 23.
West Texas Intermediate (WTI) crude was up 31 cents, or 0.5%, to $59.49 a barrel, the highest since Sept. 16.
· A slump in the U.S. dollar against the backdrop of a strong pound also helped to boost commodity prices, said Margaret Yang, market analyst at CMC Markets.
· “Risk appetite ran wild after Trump signaled the he made a deal with China and that will only be positive for global demand forecasts for crude,” said Edward Moya, senior market analyst at OANDA.
“If we see even further progress with the U.S.-China trade war, we could see global GDP rise by half a percentage point in 2020 and that would do wonders for crude demand forecasts,” said Moya.
Reference: CNBC, Reuters, The Wall Street Journal, South China Morning Post
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