Date: July 30, 2019
Trump Lashes Out at China as Trade Talks Resume; Stocks Fall
“President Donald Trump lashed out at China for what he said is its unwillingness to buy American agricultural products and said it continues to “rip off” the U.S., just as the two nations resumed negotiations in Shanghai after a three-month breakup. “China is doing very badly, worst year in 27 — was supposed to start buying our agricultural product now — no signs that they are doing so,” Trump said Tuesday on Twitter. “That is the problem with China, they just don’t come through.” Futures on the S&P 500 stock index, which is hovering near a record high, touched session lows after Trump’s remarks. The price of soybeans and cotton also went lower. Trump said that the U.S. has “all the cards” and warned that if he’s reelected in 2020 China faces a much tougher deal. He said “they always change the deal in the end to their benefit,” adding that “they should probably wait out our Election to see if we get one of the Democrat stiffs like Sleepy Joe.” That’s a reference to Democratic presidential candidate, former Vice President Joe Biden. Financial markets are on edge about the fate of talks between the world’s largest economies and a two-day Federal Reserve meeting that starts Tuesday. The U.S. central bank is expected to lower interest rates for the first time in more than a decade, partly because trade war concerns are slowing business investment. U.S. delegates including Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer arrived in Shanghai to begin another round of talks with their Chinese counterparts. The Americans are set to attend a dinner at the Fairmont Peace Hotel on Tuesday evening, and talks are scheduled to pick up again on Wednesday in China’s bustling port city. Expectations for a breakthrough in the trade talks remain low. The two sides are further apart than they were three months ago, when negotiations broke down and each side blamed the other for derailing attempts to reach a deal. China is pushing for compromise in the talks, with state media underlining this week that the U.S. should meet it “halfway.” It’s unclear what triggered Trump’s latest outburst. U.S. soybean exports to China slumped in the first half of the year to the lowest level in more than a decade, while pork sales in June slipped from a month earlier. After the president’s tweets, soybean futures extended a decline, falling as much as 0.4% in Chicago.”
The Pound Is Now the Most Volatile Currency in the G-10
“The pound is buckling under concerns about Brexit, and the Bank of England may add further pressure to the currency when it meets this week. Sterling dropped as much as 0.8% against the dollar to 1.2119 on Tuesday, extending Monday’s 1.3% decline. The cost of insuring against volatility in the pound over a three-month period has climbed to the highest among the Group-of-10 currencies as concerns grow that U.K. Prime Minister Boris Johnson will opt for a no-deal Brexit. The central bank is also expected to signal that it is unlikely to raise interest rates in coming months, removing any support for the currency, which is trading at around the lowest since March 2017. Money markets are, in fact, pricing a more than 60% chance of a 25-basis point rate cut by December on concern the U.K. may exit the European Union without a divorce deal. That compares with just 20% in June, shortly after the central bank bucked global trends and cited the need to raise rates in coming years. “With Boris Johnson now installed as PM, the Brexit saga is set to recommence,” strategists at JPMorgan, including Meera Chandan, wrote in a client note. “The BOE’s shift toward a neutral bias — all but giving up hopes for continued normalization — will do little to support” the currency. JPMorgan sees policy makers lowering their growth outlook while moving further away from raising rates when they announce their decision and release their quarterly inflation report on Thursday. Three-month risk reversals for the pair slipped to 182 basis points in favor of selling sterling, the most bearish since April. The pound also fell against the euro and the yen. Gilts, meanwhile, are headed for a third monthly rally and strategists foresee the gains extending. The yield on 10-year government bonds has fallen 16 basis points to 0.65% this month, and could slip below 0.50% in the event of a no-deal Brexit, according to Petr Krpata, the chief EMEA currency and rates strategist at ING Bank NV. “The more Brexit uncertainty there is, and more it spills over negatively in the growth outlook, the more downward pressure on U.K. yields there will be,” Krpata said. “If early election weighs on sterling, as we expect, then U.K. rates and yields will go lower due to the mix of flight to safety and the Brexit uncertainty.” ”
China Says Hong Kong Protest Violence ‘Is Creation of U.S.’
“China said recent violence in Hong Kong protests was the “creation of the U.S.,” for the first time laying direct blame on Washington as their dispute over the unrest escalates. Chinese Foreign Ministry spokeswoman Hua Chunying made the remark at a news briefing Tuesday in response to comments by U.S. Secretary of State Michael Pompeo. The top American diplomat had said Monday that he hoped “the Chinese will do the right thing” in managing the protests in Hong Kong. “It’s clear that Mr. Pompeo has put himself in the wrong position and still regards himself as the head of the CIA,” Hua said, referring to Pompeo’s previous role at the intelligence agency. “He might think that violent activities in Hong Kong are reasonable because after all, this is the creation of the U.S.” The comments show the U.S.-China strains over Hong Kong are increasing, even as the two sides resume trade talks in Shanghai. Last week, Hua urged Washington to remove its “black hand” from the protests, a comment that the State Department dismissed as “ridiculous.” Beijing has long attributed unrest in Hong Kong and other regions under its control to unspecified foreign forces, with the U.S. and the U.K. as the most obvious targets. Those complaints have increased in recent weeks as American and European governments and companies issue statements urging China to respect the rights of Hong Kong protesters critical of the government in the former British colony. Pompeo is due to arrive in the region Wednesday to attend Association of Southeast Asian Nations meetings in Bangkok, where he may cross paths with his Chinese counterpart, Foreign Minister Wang Yi. Tying the U.S. to the unrest could serve several purposes for Beijing, including discrediting the protesters, rallying mainland sentiment against them and potentially justifying more direct intervention. China’s top government agency overseeing the city on Monday reiterated that preventing Hong Kong from becoming a “base to undermine China” was one of its three “bottom lines.” Pompeo was paraphrasing similar comments by President Donald Trump while answering a question at the Economic Club of Washington, D.C., about how the U.S. would respond if China sent in the military to quell the unrest. Hong Kong is still reeling from a weekend of protest in which police fired tear gas at protesters, some of whom threw bricks and carried sticks. In her remarks Tuesday, Hua noted that some demonstrators looked American and waved U.S. flags. “In the media footage of the violent protests, many U.S. faces appeared among the protesters, even U.S. national flags at one point, Hua said. “What role does the U.S. play exactly in the recent Hong Kong protests? The U.S. owes the world an explanation on this matter.” Harvey Sernovitz, a spokesman for the U.S. Consulate General in Hong Kong, said last week that the protests were rooted in the concerns of the city’s residents. “The ongoing demonstrations in Hong Kong reflect the sentiment of the people of Hong Kong and their broad concerns about the erosion of Hong Kong’s autonomy,” Sernovitz said.”
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