Date: September 4, 2019
U.S. Trade With China Fell in July Despite Truce in Tariff War
“America’s merchandise trade with China continued to sag in July despite a tariff-war truce between the world’s two largest economies that’s since evaporated as President Donald Trump escalated levies and China retaliated. U.S. exports of goods to the Asian nation fell 2.7% from the prior month while imports declined 1.9%, narrowing the trade gap between the countries to a seasonally adjusted $29.6 billion, according to data Wednesday from the Commerce Department. The overall U.S. deficit in goods and services trade shrank by less than estimated to $54 billion, a three-month low. China, the largest U.S. trading partner last year, has fallen behind both Mexico and Canada in 2019 amid the increasing tariffs and heightened uncertainty about when — or if — the trade war will be resolved. The conflict has muddled companies’ supply chains and stymied plans for capital investment, with U.S. manufacturing in a recession in the first half and rising concern that a broader downturn is coming. On top of that, a strong dollar and a weakening global outlook continue to damp demand for U.S. exports more broadly, though steady consumer spending is supporting imports. While trade with China declined, U.S. merchandise imports and exports with Canada and Mexico were relatively little changed on the month. The U.S.-China trade picture looked much different in July from now. Trump and Chinese leader Xi Jinping declared a tentative truce in late June, and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin traveled to China for negotiations at the end of July.”
The U.K. Is on Course for a Recession
“The U.K. may be on course for its first recession since the financial crisis after Brexit uncertainty pushed down the nation’s dominant services industries more than expected. Growth in the sector almost stalled last month, IHS Markit said as it published its Purchasing Managers Index Wednesday. With similar surveys indicating the nation’s manufacturing and construction industries are in deep downturns, the readings imply the economy is set to shrink 0.1% in the third quarter, Markit said. Output already fell 0.2% in the three months through June, which means that such an outcome would mean the country had entered a recession even before it leaves the European Union at the end of next month. “Business activity in the service sector almost stalled in August as Brexit-related worries escalated, curbing spending by both businesses and consumers.” said Chris Williamson, chief business economist at Markit. “The lack of any meaningful growth in the service sector raises the likelihood that the U.K. economy is slipping into recession.” Worse could be to come amid fears that Boris Johnson’s government could pursue a potentially damaging no-deal exit. Those concerns, supercharged by the risk on an imminent election, have sent the pound tumbling, with the currency dropping below $1.20 for the first time since early 2017 on Tuesday. Markit’s index for the services sector fell to 50.6 last month, below economists’ expectations for a reading of 51. Business optimism slipped to its lowest level since the immediate aftermath of the 2016 referendum, while input price inflation accelerated to its strongest since January. The U.K. situation is particularly “tense because of the uncertainty created by Brexit,” OECD Chief Economist Laurence Boone told Bloomberg Television on Wednesday. “Since Brexit negotiations started, investment growth has been zero, a flat line. That’s a reflection of the uncertainty around the world.” Brexit won’t be “that big a deal“ for the EU, Boone said, adding that there are funds available to help badly affected countries and sectors, like agriculture and electronics. Similar reports earlier this week showed the U.K.’s manufacturing sector is in its worst downturn since 2012, while the construction industry contracted for a fourth straight month. Still, most analysts still predict overall growth will bounce back in the three months through September, partly as a result of renewed stockpiling ahead of the Oct. 31 exit date.”
China Cabinet Calls for ‘Timely’ Moves to Support Economy
“China’s cabinet signaled that a reduction in the amount of funds banks have to hold in reserve is on the way, in a move aimed at releasing cash into the slowing economy. The State Council called for the “timely” use of tools including broad and targeted reserve-ratio cuts to support the economy, according to a statement following a meeting chaired by Premier Li Keqiang. The central bank usually follows such requests from the State Council. The People’s Bank of China last made a broad cut the required reserve ratios in January, after a similar announcement by the State Council meeting in December. The same measure was reduced for rural lenders in May. The statement comes as a growing number of economists cut their forecasts for gross domestic product growth in 2020 to below 6% as a result of increasing risks from the tariff war with the U.S. Bank of America’s Helen Qiao and others are warning that the government’s current approach to stimulus has so far proved insufficient. “It’s very likely an RRR cut and a targeted RRR cut will come in September,” said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. “A full cut to banks’ reserve ratio is needed to make sure of effective financial support to economic growth, as the global economy slows and domestic consumption and investment face headwinds.” In addition to the RRR cut, the cabinet called for an acceleration of the issuance of so-called special bonds by local governments. The bonds are mostly used to pay for infrastructure spending, and will lend support to the economy which faces downward pressure from the complex external environment, the statement said. Funds raised via local government special bond sales can be invested in sectors including transport, energy, agriculture and forestry, vocational education and medical care in 2020, while projects such as land reserve and property will be prohibited, according to the statement.”
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