Overseas Headlines- July 24, 2019

Date: July 24, 2019

United States:

U.S. Negotiators Heading to China Monday for Talks

“U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are set to travel to China Monday for the first high-level, face-to-face trade negotiations between the world’s two biggest economies since talks broke down in May. The White House confirmed Wednesday an earlier Bloomberg report that senior officials will be in Shanghai next week to cover a range of issues including intellectual property, agriculture and the trade balance. President Donald Trump and Chinese counterpart Xi Jinping met at the Group of 20 summit in Japan last month and declared a tentative truce in their year-long trade war. The leaders directed their negotiators to resume trade talks. Since then Mnuchin, Lighthizer and their Chinese counterparts have spoken by phone. The Chinese requested that the meeting take place in Shanghai, rather than Beijing, Bloomberg reported Tuesday. The location has significance and symbolism for Chinese leaders, Mnuchin said in an interview with CNBC Wednesday. He also said the meeting will hopefully yield progress but that many issues remain. “My expectation is there’ll be a few more meetings before we get a deal done,” Mnuchin told reporters Wednesday in Washington. “My expectation is there’ll be a follow-up meeting back here shortly thereafter, assuming things go as we expect them to be.”




Bank of England Is Losing Credibility With the Public, BofA Says

“The Bank of England’s forecasts are losing authority with the public as well as markets, according to Bank of America Merrill Lynch. Almost half of the U.K. public have no idea where inflation will be in the next five years, a record high. Investors are betting that the next BOE move will be a rate cut even though the bank’s forecasts imply a need for hikes over the next few years. Households tend to base their expectations of inflation on the current rate, also taking into account the prices of everyday products such as food and gasoline. Until 2016, this view of inflation has largely coincided with BOE forecasts. After the Brexit referendum however, the two views of the economy began to diverge, as the public expected inflation to rise, while BOE predicted it would fall, economists led by Robert Wood wrote in a note dated July 22. “We’d rather have expectations a little above than below target in a world of limited monetary policy ammunition,” the economists wrote. “But the more expectations deanchor, the less room the BOE will have to fight the next recession.” Since the 2016 referendum, the BOE has based its inflation forecasts on the 100% probability of a Brexit deal. The markets, on the other hand, include a significant possibility of a no-deal Brexit, leading to disparate outlooks for borrowing costs. The BOE has forecast inflation will rise above its 2% target for two years, only to keep rates low, raising twice in the last sixteen quarters. BofA said that this has led to particularly difficult communication issues for the BOE, and could lead to more volatile monetary policy.”



China’s Central-Bank Governor Says Current Interest Rates Good

“China’s central bank governor said the country’s current interest rates are at an appropriate level, and the bank will make decisions on interest rates based on domestic considerations. China didn’t follow the Federal Reserve in raising interest rates last year, and it’ll continue to “look at its own real situation” when making rate decisions now that the Fed is likely to cut, People’s Bank of China Governor Yi Gang said in an interview with Caixin published Tuesday. “Lowering interest rates is mainly to tackle deflationary risks, but China’s inflation is moderate at the moment,” with consumer price gains at 2.7%, he said. “Therefore the current interest rates level are appropriate, or close to a ‘golden’ level, a comfortable level.” Yi’s comments signaled policy makers remain satisfied with the targeted approach of stimulus for now even with the economy slowing. Rather than a straightforward cut to the benchmark interest rate, Yi pointed to a long-awaited reform to the rate framework that could help lower borrowing costs for the real economy. In that reform, Yi said the benchmark lending rate will gradually fade out and be replaced by the Loan Prime Rate, or the rates banks offer to their best clients. The LPR will make reference to more market-oriented interest rates, such as the cost of medium-term loans the PBOC makes to financial institutions, Yi said.”


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