The Daily Update - Don't You Dare, Ah You Did

The Daily Update - Don't You Dare, Ah You Did

After a delay, which is unusual, China responded last night to the US tariff proposal of last week with up to $60bln of imports with a 25% tariff which covers around 2500 US export items effective June 1st.

Strangely, the Chinese retaliation announcement came just 30 minutes after President Trump had tweeted a warning for China not to retaliate. He also said he still had not made a decision on adding additional tariffs to a further $325bln of Chinese goods and said he will meet with the Chinese leader in Japan next month at the G20 summit. In fact US Secretary Mnuchin said trade talks are continuing.

The Daily Update - Ongoing Tariff Talks

The Daily Update - Ongoing Tariff Talks

Donald Trump on Friday said that trade talks between the US and China would continue into the future, with tariffs and the proposed increase in them, being removed or not, all dependent on the outcome of the negotiations. Trump tweeted ‘We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries...’

The Daily Update - The Art of the Deal?

The Daily Update - The Art of the Deal?

Following the US announcement that tariffs on $200bn of Chinese imports would increase to 25% as of Friday markets broadly traded with a risk-off bias into Thursday’s close. Unsurprisingly, China warned of ‘necessary countermeasures’ if the US went ahead with the intended tariff increases. A further round of trade negotiations did take place between the Chinese and US in Washington on Thursday with Chinese Vice-Premier Liu He heading up the Chinese delegation.

The Daily Update - Japanification Concerns

The Daily Update - Japanification Concerns

In Japan, which some observers think as an image of Europe in twenty years’ time, the Bank of Japan (BoJ), is considering lengthening their forward guidance on forward rates beyond Spring 2020. Concern has been reflected due to the lack of growth through the first quarter as exports and industrial production, the big sustainable engines of growth, remained weak due to a slowing in the global economy and a sluggish China.

The Daily Update - Trade War Concerns Felt Far and Wide

The Daily Update - Trade War Concerns Felt Far and Wide

93% of stocks in the S&P 500 closed lower yesterday as market optimism over the US-China trade deal eroded. On Monday, Robert Lighthizer, US Trade Representative, warned of a recent “erosion in commitments by China”, clearly stating that as things stand tariffs on Chinese imports would rise from 10% to 25% this Friday.  The tariff news was reiterated by President Trump in a string of tweets, not only warning of impending 25% tariffs on the current $200 billion, but broadening the levy to over half a trillion dollars in Chinese goods with a further $325 billion in tariffs.

The Daily Update - Fed's Debt Warning

The Daily Update - Fed's Debt Warning

In the Fed’s latest semi-annual Financial Stability Report, it has again warned that companies with already large amounts of debt are continuing to borrow at a breakneck pace, prompting fears that if the trend continues there could be a risk to the financial system. The warning mirrors that of the one issued in November, however, now the report stated a record 40% of loans to the most highly indebted companies went to those who are the most indebted of all.

The Daily Update - Trump Trumped by Independence

The Daily Update - Trump Trumped by Independence

Back in early April, we wrote about President Trump’s attempts to sway the independence of the Federal Reserve Open Market Committee, FOMC, by promoting two candidates to the vacant Board of Governors positions who were both calling for immediate rate cuts.

Herman Cain fell away early after some senators made it known they would not back the appointment noting claims of his politicised approach to monetary policy and past allegations of sexual misconduct.

The Daily Update - Patient Fed & IOER

The Daily Update - Patient Fed & IOER

As expected, the FOMC left the Fed Funds target range unchanged at 2.25-2.5% and stuck with its ‘patient’ approach. Given the recent soft PCE data the Fed’s view on inflation was a key focus. The FOMC statement acknowledged a softening in the inflationary backdrop stating ‘On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent.’ However, Jerome Powell’s comments in the press conference sent a cautionary warning to the market doves.

The Daily Update - Happenings in the World of Trillion Dollar Companies

The Daily Update - Happenings in the World of Trillion Dollar Companies

So far there have only really been three of them in the US: first Apple in August 2018, then Amazon in the following month, and last to join the trillion dollar club was Microsoft just in this past week. In the turbulent period since Apple’s landmark accomplishment valuations had pushed highs of $1.1tn and bottomed below $0.7tn (as with Amazon). But the ~30% rally so far this year finally pushed Microsoft over the line and brought the other two tech giants back within 5% (a mere 50 billion dollars) of that twelve-zeros stature – so only meet the mark on a good day with the benefit of a rounding error.

The Daily Update - Vacant Possessions

The Daily Update - Vacant Possessions

hat Japan’s population is ageing will not come as a surprise to anyone. Having peaked in October 2010 at a fraction over 128 million, since then Japan’s population has been shrinking at the rate of around 200 thousand per annum. However, this seemingly modest decline masks a much bigger shift which lies beneath the surface.

Japan’s birth rate currently stands at 1.43 children per woman which is well below the 2.07 births estimated to be the level required to keep the population stable.

The Daily Update - China's Belt and Road Warning

The Daily Update - China's Belt and Road Warning

The IMF’s managing director, Christine Lagarde, used a speech in China to warn Chinese President Xi Jinping against letting China’s belt and road initiative build up unsustainable debt that could be problematic for participants in the future. She also warned that China should be very aware of the environmental cost of the initiative, urging that the whole project should be based on sustainable development.

The Daily Update - Brazil & Pension Reform

The Daily Update - Brazil & Pension Reform

Reforming Brazil’s pension system is not only an important pledge of Jair Bolsonaro’s administration but it is also critical for putting Brazil on a more sustainable fiscal path: the Brazilian sovereign is rated Ba2/BB-/BB- by Moody’s/S&P/Fitch such has been the deterioration in its credit metrics in recent years.

Moody’s note the need for fiscal consolidation and thus the need for social security reform to put Brazil’s growing government debt burden (~76% of GDP) on a more sustainable path: ‘Mandatory primary spending represents over 90% of total central government primary spending, with social-security-related expenditures accounting for 57% of primary spending. Moreover, the growth in mandatory spending, particularly social security and pension-related spending, has outpaced economic growth over the past 20 years.’

The Daily Update - Renewed Highs Without Renewed Confidence

The Daily Update - Renewed Highs Without Renewed Confidence

4 months (almost to the day) and the bear-market drawdown in the S&P 500 has been undone. In 2018, the S&P 500 fell a fraction over -20% between late September’s peak and what turned out to be a Boxing Day sale in equities. Apart from the +-5% whipsaw over three low volume trading days around Christmas, US equities have steadily clawed back losses to yesterday touch new highs of 2,936 following another run of strong earnings.

The Daily Update - Trump Waivers

The Daily Update - Trump Waivers

The White House confirmed yesterday that they would not extend waiver extensions in regard to Iranian oil exports, which is totally against markets expectations. This is thought to leave major importers from Iran, China at 613k b/d, South Korea at 387k b/d and India at 258k b/d open to secondary US sanctions relating to their Iranian oil imports and also opens further upside potential to oil pricing as the supply side is curtailed.

The Daily Update - Oil, OPEC+ and NOPEC

The Daily Update - Oil, OPEC+ and NOPEC

Brent crude is trading ~USD71.41 per barrel, ~32.75% higher YTD, so it is only likely to be a matter of time before Donald Trump takes to twitter again to voice his displeasure that prices are too high. Tuesday’s API report showed a decline in US crude inventories for the prior week, when expectations had been for an increase, pointing to a further tightening in the market. Wednesday’s EIA data also showed crude inventories declining, the first decline in four weeks.

The Daily Update - Shanghai Motor Show and Electric Vehicle Supply and Demand (Part Two)

The Daily Update - Shanghai Motor Show and Electric Vehicle Supply and Demand (Part Two)

With the Shanghai Motor Show being a good excuse to talk about the electric car market, yesterday we made some brief comments on EV supply and how it’s possible to see it accelerating over the next few years as a trifactor (at least) of developments approach maturity. Today follows with some brief comments on the demand side of the equation. Projecting demand for EVs into the future is harder with fewer and less reliable leading indicators. But a good starting point is looking into the dynamics which have driven recent demand – notably in China where the most extraordinary boom in this market has occurred – and evaluating drivers that could push it still higher (or be introduced in other markets) alongside potential constraints that could dampen the trend.

The Daily Update - Shanghai Motor Show and Electric Vehicle Supply and Demand (Part One)

The Daily Update - Shanghai Motor Show and Electric Vehicle Supply and Demand (Part One)

One of the largest car shows in the world’s largest auto market began today; it is of course the Shanghai Motor Show. It’s a chance to ogle as new cars like the Aston Martin Rapide E are unveiled – their first electric vehicle – which with 600hp becomes another contender to Tesla in this ever broadening market. Also on the horizon are cars like the Lotus Type 130 “electric hypercar” confirmed at the show by Geely: the Chinese manufacturer that bought a majority in Lotus last year.

The Daily Update - Level Heads Needed

The Daily Update - Level Heads Needed

The IMF has issued a warning to governments across the globe that the world economy is in a delicate place and policymakers, along with central banks, should be very careful how they proceed. With the world economy on somewhat of a knife edge, the IMF believes countries that are in the black, such as Korea and Germany, are in a position to provide a lot of stimulus, however, are choosing not to. Only a few days ago the IMF also called on Switzerland to increase its public spending.

The Daily Update - China Index Inclusion and Renminbi Internationalisation

The Daily Update - China Index Inclusion and Renminbi Internationalisation

Greater and better representation of growing or important bond markets in global indices continues to be an important theme this year. For example, we have highlighted the inclusion of Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE in the JP Morgan Global Diversified Emerging Market Bond Index (EMBI-GD) in phases from January 2019 and how this is helping to promote greater investor interest in and flows into the GCC region. But also of great importance is the greater representation of China’s local bond market in global indices: as of April 2019 the Bloomberg Barclays Global Aggregate Index will start to include renminbi denominated onshore Chinese government and policy bank bonds.

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