Overseas Headlines- February 15, 2019

United States:

Xi Hails Important Progress, Says Trade Talks to Resume in U.S.

President Xi Jinping said U.S.-China trade talks would continue next week in Washington, as the two sides race to reach a deal that would avert a tariff increase on Chinese goods after March 1. “Negotiations between both sides have achieved important progress in another step,” Xi said after a round of trade talks wrapped up in Beijing, according to China’s Xinhua News Agency. “Next week, both sides are going to meet in Washington. I hope you keep up the good work, and push for a mutually-benefiting and win-win agreement.” Xi said he values the “good working relationship” with President Donald Trump very much, and is willing to keep in touch with him in various ways. He added that China was “willing to solve the bilateral economic disputes and frictions through cooperation, and push for an agreement that both sides can accept. But cooperation has principles.” The U.S. echoed the sentiment, saying there had been progress reached, but that work remained, according to an emailed statement from the White House. The two sides agreed that commitments reached would be stated in a memorandum of understanding, according to the statement. Treasury Secretary Steven Mnuchin sounded a positive note on Friday, saying he and U.S. Trade Representative Robert Lighthizer held “productive meetings” with China’s Vice Premier Liu He. They both also met Xi later in the day. We feel we have made headway on very, very important and difficult issues,” Lighthizer said, according to the Associated Press. “We have additional work we have to do but we are hopeful.” The two sides remained far apart this week on structural reforms to China’s economy that the U.S. has requested, according to three U.S. and Chinese officials who asked not to be identified because the talks were private. They said it would likely take a meeting between Xi and Trump to seal a deal.



BOE Rate-Hike Forecasts Pushed Out as Uncertainty Rumbles On

Economists are pushing back their Bank of England predictions, meaning it’s a close call whether Governor Mark Carney will manage another interest rate hike before he leaves. With a Brexit agreement yet to be found, a slew of weaker-than-predicted data and more dovish noises from the central bank, analysts in a Bloomberg survey now see the benchmark rate rising to 1 percent from 0.75 percent in the fourth quarter. They previously anticipated a move before the end of June. By predicting any move this year, the economists surveyed are still more optimistic than markets, who aren’t fully pricing in any increase until beyond May 2020. That’s after Carney is due to leave the central bank early that year. In its Inflation Report last week, the BOE cut its 2019 growth projection to the weakest in a decade and predicted a dramatic investment slump. That was followed by a speech by Carney on Tuesday that warned of the “extraordinary situation” of uncertainty faced by U.K. businesses as Prime Minister Theresa May struggles to convince lawmakers to pass her Brexit deal. The most dovish voice of all though came from policy maker Gertjan Vlieghe, who on Thursday said that even with an agreement, weakness in the British economy and abroad means that a slower pace of hikes will be needed in coming years. The Citi Economic Surprise Index, which measures whether data beat or miss analyst forecasts, has slumped to the lowest level since June. There was some positive news on Friday, however, with retail sales growing the most in in six months in January. Helped by consumers flocking to snap up cut-price clothing, sales excluding auto fuel rose 1.2 percent.



China’s Slowing Factory Prices Add to Deflation, Profit Concerns

China’s factory inflation decelerated for a seventh month, adding to concerns about the return of deflation and the impact that will have on already weak corporate profits. The producer price index rose 0.1 percent in January from a year earlier, the seventh straight month it has slowed, according to the National Bureau of Statistics. Economists expect it to rise 0.9 percent in 2019, well below the 3.5 percent increase last year. Industrial profits started falling late last year and the continued slide in factory prices will exacerbate that, increasing pressure on companies which are already struggling due to the slowing economy. Factory disinflation will also likely have a downward impact on export prices, pushing them down prices around the world. “Today’s figure bodes ill for profitability upstream,” said Raymond Yeung at Australia & New Zealand Banking Group Ltd. in Hong Kong, noting that prices for production materials actually declined 0.1 percent. “Falling factory prices will drag on industrial profits of the respective industries.” Consumer price inflation also slowed, rising 1.7 percent from a year earlier. With a continued slowdown in industrial output and consumption, a further deceleration in China’s economy will hurt demand for imported goods. Separately, credit data released Friday showed new loans riding a seasonal surge to hit a record of 3.23 trillion yuan ($476 billion). While the data may relieve some concerns over a deceleration in the world’s second-largest economy, distortions caused by the Lunar New Year holiday timing make it tough to use those figures for a definitive read on the health of the broader economy. The nation’s economy could slow for another three to four quarters, Larry Hu, head of China economics at Macquarie Securities Ltd. wrote in a recent note, adding that “2019 could see the return of PPI deflation and negative earnings growth.”


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