The Daily Update - An Optimistic Note Does Not a Harmony Make

With the China-US talks extending into their third day, European and Asian markets welcomed the demonstration of commitment by both sides and were further upbeat today with news that the trade talks concluded on an “optimistic note”. The CSI 300 and Hang Seng were both up 2% earlier this morning, but Chinese state media has quotes from persons inside the foreign ministry stating the US did not immediately confirm any agreement. An official announcement of the outcome is expected from Chinese media later today.

Most likely there will be a well-dressed announcement of further temporary measures. It’s still too early on, following the 3-month freeze on new tariffs agreed in December, for there to be enough pressure for a serious and lasting resolution. Given the vastly divergent economic ideologies and the complexity of trade negotiations, it seems impossible to most observers that a comprehensive deal involving a full rollback of tariffs could even be achieved before the 1st March deadline. Extending talks by one day certainly won’t be enough for the parties to reach a consensus on opening-up of the Chinese market while Beijing relies on state control to protect the economy from current slowing growth, let alone craft an impactful and agreeable solution to the bilateral trade deficit.

Meanwhile, the World Bank lowered its global growth forecasts again, warning of “Darkening Skies” for the world economy. The “Darkening Skies” theme for this year’s Global Economic Prospects paper reflects not just the protectionist and trade concerns of China and the US but that “In a nutshell, growth has weakened, trade tensions remain high, several developing economies have experienced financial stress, and risks to the outlook have increased.” The paper also highlights the growing concern of rising debt in low-income countries and the implications of the “slowdown in productivity and investment growth” in advanced economies.

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