Overseas Headlines- February 8, 2019

United States:

Trump Says He Won’t Meet Xi Jinping Before Tariff Deadline

President Donald Trump said he won’t meet Chinese President Xi Jinping before a March 1 deadline to avert higher U.S. tariffs on Chinese goods, intensifying fears the two won’t strike a deal before the end of a 90-day truce. Trump responded “No” and shook his head Thursday when reporters at the White House asked him if he would meet with Xi this month. Then he added, “Unlikely.” But the U.S. president said the two would “maybe” meet later. Trump told reporters last month that he planned to meet Xi in late February, adding there was a “good chance” of striking a deal. Time is running out for the U.S. and China to reach an agreement before the deadline the Trump administration has set to more than double tariffs on $200 billion of Chinese goods. While the U.S. has said it’s a hard deadline for the tariffs, Trump has also suggested he could agree to extend negotiations beyond month’s end if progress is being made. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are leading a group of administration officials headed to Beijing next week as part of the trade talks. Lighthizer told reporters last week that it was not certain a deal could be reached. Asian stocks tumbled Friday on worries the U.S. and China won’t reach an agreement. One senior administration official said the decision not to go ahead with a meeting between Xi and Trump before March 1 should not be read as a sign the talks were breaking down. Rather it was due to the amount of work that still needed to be done by negotiators. The two leaders could also speak by phone, the official said.



East Europe Keeps Rates on Hold as Euro-Area Weakness Prevails

Central banks in eastern Europe kept borrowing costs unchanged as expected as the euro area slowdown outweighed inflation outlooks. With the European Central Bank facing dwindling chances of being able to raise rates this year, policy makers in Poland, the Czech Republic, Romania and Serbia took a wait-and-see approach to asses risks coming from their biggest export market. That’s rare unity in a region that saw diverging monetary paths last year, ranging from a series of rate hikes in the Czech Republic to cuts in Serbia. Poland, which has kept its benchmark rate at a record-low since 2015, extended the pause after inflation slowed to a two-year low in December and concerns grew about prospects for the global economy. Price growth has undershot the 2.5 percent target for six years, even as the EU’s largest eastern economy expanded 5.1 percent in 2018. Governor Adam Glapinski said rates will remain unchanged at least into 2020, adding that other central banks including the Federal Reserve may have been too swift in turning to monetary tightening. “We’re conservatively using the same policy, maybe even for the longest time in the world,” Glapinski said after the decision. “It works and it’s good.” The Czech central bank, which led monetary tightening in Europe with five rate increases last year, held borrowing costs unchanged for a second meeting, with Governor Jiri Rusnok citing external risks as a key factor. He said he “can imagine” one or two more hikes this year, calling inflation pressures significant. The bank cut its economic growth forecast for 2019 and 2020. An adverse economic scenario could warrant keeping rates on hold, Rusnok said.



Russia Keeps Rate on Hold, Weighs Inflation Impact of Past Hikes

Russia’s central bank kept the key rate unchanged following a hike in December as a rally in the ruble and weak consumer demand tempered a spike in inflation. The one-week auction rate was kept at 7.75 percent, according to a statement on Friday. That matched 39 forecasts out of 40 in a Bloomberg survey. One economist had predicted a quarter-point increase. The bank “will decide on the key rate, taking account of whether the rate increases in September and December 2018 are enough for annual inflation to return to the target in 2020,” the statement said. “The balance of risks remains skewed toward pro-inflationary risks, especially over a short-term horizon.” The central bank maintained its estimate that annual inflation will peak in the first half of this year and ease to as low as 5 percent by the end of this year, reaching 4 percent in 2020. Policy makers will need at least until April to evaluate the impact of the VAT increase that took effect Jan. 1, according to the statement. The bank’s guidance “considerably reduces the chances of a rate increase,” said Oleg Kouzmin, an economist at Renaissance Capital in Moscow. “We’ll see a rate cut no earlier than the start of 2020, and we won’t see a rate increase this year unless there are sanctions.” The December hike, as well as a rally in emerging markets, also helped offset the negative impact of a resumption of foreign-currency purchases in January The ruble, which is among the best-performing currencies in the world this year, traded 0.1 percent weaker at 66.006 against the dollar at 2:31 p.m. in Moscow on Friday.


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