June 17, 2019
United States:
Why a Trump-Xi Truce at G-20 Isn’t a Slam Dunk
The suspense is building ahead of the Group of 20 summit in Japan next week, with many analysts and investors betting that Presidents Donald Trump and Xi Jinping will meet on the sidelines and agree to resume the trade talks that broke down last month. But there’s a very real possibility the wagering on a truce may be in vain, and U.S. Commerce Secretary Wilbur Ross’s weekend comments tempered expectations for a deal. Here are three big events that could help shape both the likelihood of a meeting in Osaka on June 28-29 and what might emerge from one: Robert Lighthizer, who’s riding herd on Trump’s China trade talks, appears before the Senate Finance Committee on Tuesday. The U.S. trade representative’s testimony will mark his first public remarks since talks stalled. Lighthizer is a China hawk, but a pragmatic and camera-shy one. That is why his testimony this week is so important. Domestic opposition to Trump’s tariffs will be on full display all week. Hundreds of companies and industry groups are set to speak at public hearings in Washington, most of them against Trump’s threat to escalate his fight against China by placing tariffs on a $300 billion tranche of goods, including laptops, smartphones and children’s clothing. While the hearings are just procedural, they’ll highlight the backlash he faces at home just as he is eager to appear strong.
Europe:
ECB Officials Say Bank Ready to Act Amid ‘Alarming’ Market Signs
European Central Bank policy makers said the institution will act if needed to support the economy, keeping alive the possibility of interest-rate cuts or quantitative easing returning to the euro area. Executive Board member Benoit Coeure and Governing Council member Pablo Hernandez de Cos said officials are monitoring signals from markets, though added they will make their own assessment of the situation before any monetary policy action. Officials have “more doubts” about euro-zone inflation reaching their goal, Bank of Spain Governor Hernandez de Cos said at a conference in Santander. He also said economic growth will slow this quarter after a strong start to the year, and noted the increased risks from trade tensions and a “hard” Brexit. Those were among the concerns the forced ECB President Mario Draghi to extend the central bank’s forward guidance this month and pledge to keep rates on hold at least through mid-2020. Hernandez de Cos reiterated that the institution is ready to use other tools, including rate cuts, to boost inflation and growth. In a Financial Times interview, Coeure said most of the economic concerns relate to manufacturing, and may be temporary, but that signals coming from financial markets are “quite alarming.” “So far we’re talking about contingency planning,” he said. “But at some point during our next few meetings, we might very well be facing a situation where risks have materialized.” The remarks come ahead of the ECB’s annual symposium in Sintra, Portugal, which kicks off Monday evening with remarks from Draghi. Policy loosening is also on the horizon for Federal Reserve, which meets this week. Investors are primed for it to indicate a willingness to lower the U.S. benchmark rate in coming months.
Asia:
Indonesia’s Central Bank Chief Sees Room for Interest Rate Cut
“If we take into account low inflation and economic growth that needs to be pushed, indeed, we already know that there’s room to lower interest rate,” Warjiyo told lawmakers on Monday, without giving an indication of timing. “As of now, global financial market condition is still full of uncertainties, whether related to trade war, Brexit, geopolitics etc, which can lead to capital flows reversal and bring risks in financing the current-account deficit.” Central banks around the globe have been shifting to a looser monetary policy position as they look to counter slowing demand with India, Australia, New Zealand, the Philippines and Malaysia all cutting rates in recent weeks. While Indonesia’s economy has been growing at about 5%, officials are also becoming increasingly worried about risks to growth, citing an escalation in trade hostilities between the U.S. and China. Bank Indonesia May Ease Monetary Policy, Finance Minister Says Indonesia’s central bank is scheduled to make its next interest rate announcement on Thursday. If it lowers the rate, it would be the first cut since September 2017, and mark the beginning of an unwinding of a tightening cycle that began in May last year.