“China vs US …..”

China vs US

Trump’s administration has pushed ahead with plans to put tariffs on about $50 billion of Chinese industrial and hi-tech products.  The move is aimed at forcing Beijing to address an entrenched theft of US intellectual property and forced technology transfer from US companies to Chinese competitors.  Chinese officials are denying this.  11 hours after President Donald Trump proposed the 25 percent tariffs on some 1,300 Chinese industrial, technology, transport and medical products, China retaliated back with a list of similar duties on major American imports including soybeans, planes, cars, beef and chemicals.  The reaction by Beijing raised the prospect of a fast spiralling dispute between the two largest economic superpowers.  If the two countries are unable to settle the dispute, the trade war could destabilise the commercial ties between the US and China to the detriment of the global economy. Information technology products amongst which cellphones, and personal computers have largely escaped the US-China trade measures despite accounting for a significant portion of bilateral trade.   In 2017, China ran a $375 billion goods trade surplus with the United States and Trump has demanded that China cut the trade gap by $100 billion.

Euro-Area Manufacturing

Euro-area manufacturing expanded at the weakest pace in eight months in March as factories delayed production due to increasing capacity constraints.  A purchasing Manager’s Index dropped from 58.6 to 56.6, IHS Markit said.  It further added that activity slowed across countries and industries in the region but remained indicative of solid growth.  IHS also said that while supply-chain bottlenecks and bad weather hindered production, in some cases demand is being capped by higher prices and the appreciation of the euro.  Policy makers at the ECB are discussing when to wind down extraordinary monetary stimulus, and some officials have cautioned that a stronger currency, trade risks and higher than expected slack might be reasons to go slow.  Despite the softer output growth in manufacturing, IHS Markit said the sector is still likely to make a substantial contribution to economic expansion in the first quarter.

UK Manufacturing

Manufacturing in the UK kept its growth momentum, despite a sharp slowdown in new orders.  According to IHS Markit, the monthly Purchasing Managers Index increased from 55 in February to 55.1 which exceeded economists’ expectations. At 55.1 the British factory PMI is above the post-financial crisis average of 53.4.  January’s reading was also revised lower and for the first quarter the PMI was its lowest in a year, though above its average since Britain exited recession in the third quarter of 2009 following the financial crisis.  Manufacturing which accounts for about 10 percent of Britain’s economy, was a relative bright spot late last year, when economic growth was the weakest among the Group of Seven rich nations.  The slowdown was effected from weaker consumer demand caused by higher inflation after the sterling went lower after the Brexit vote.

Euro Zone Bonds

Market sentiment was lifted as Washington expressed the willingness to negotiate after proposed US tariffs on $50 billion of Chinese goods started retaliation.  The news drove European stocks higher on Thursday with the Stoxx 600 rising 1.5 percent to a two-week high.  The easing of trade tensions has restrained the demand for safe-haven assets. The additional premium to hold Italian bonds over German bonds dropped to a two-month low as talks on forming a coalition started in Rome.  Meanwhile, most government bond yields across the bloc were up to 1-2 basis points.  The German 10-year yield rose for a short while to a one-week high of 0.523 percent, after having dropped below 0.5 percent on Wednesday.  Meanwhile, the Italian debt has been trading at a clear premium to its Spanish equivalent. The gap tightened to 55.8 basis points, the narrowest in 2 months, while the gap over Bunds narrowed to 121 basis points.  Italian President Sergio Mattarella is hosting a second day of coalition talks.  The process could take weeks.

Italy

In two days of meetings with President Sergio Mattarella, the situation is still not showing any progress with a number of demands blocking the formation of a government.  The vote on the 4 March had produced a deadlock with a conservative bloc including the far-right League and Silvio Berlusconi’s Forza Italia emerging as the largest group, while the anti-system 5-Star Movement was the biggest single party.  The centre-left Democratic Party which has governed for the past five years, came the third place after being punished by voters for the sluggish economy, growing poverty and a huge jump in migrant arrivals from Libya.

Ex-Catalan Leader Puigdemont on Bail

A German Court yesterday agreed to release on bail former Catalan president Carles Puigdemont and said his extradition to Spain  was possible in view of corruption charges there but not on the more serious charge of rebellion.  The court set bail at Eur 75,000.  It further added that the rebellion charge with which Puigdemont faced in Spain was not a criminal offence in Germany, while the violence part that would justify a high treason charge was also missing.  The court also said that proceedings to decide whether to extradite him on corruption charges could continue.

China – Services Growth

The services sector of China eased to a four-month low in March as new business and employment grew at a slower rate according to a private business survey.  The Markit services purchasing manager’s index (PMI) fell from 54.2 in February to 52.3 in March which is the weakest since November.  It remained above the 50 threshold that separates growth from contraction.  The Chinese economy’s solid growth momentum of last year seems to be carried over to this year’s first quarter as suggested by economic data.  Although strength in the Chinese economy will help underpin global growth, economists are sticking to the forecast that momentum will slow later this year due to a cooling property market and increase in borrowing costs.

Japan

Japan’s economy has expanded for eight consecutive quarters.  Japan’s service sector expanded at the slowest pace in 17 months in March as new business growth relented, suggesting a slight moderation in the overall economic growth.  The Markit Japan Services Purchasing Managers Index (PMI) fell to 50.9 in March from 51.7 in February.  This was the lowest reading since October 2016 however, it remains above the 50 level which separates expansion from contraction for the 18^th consecutive month.  The reading for employment rose as companies hired more workers.  The composite PMI which includes both manufacturing and services fell to 51.3 from 52.2 in February.

Facebook

On Wednesday Facebook Inc said that the personal information of up to 87 million users mostly in the United States, may have been improperly shared with political consultancy Cambridge Analytica.  The  previous news media estimate was of more than 50 million.  Meanwhile, share price in Facebook Inc. rallied in pre-market trading after Chief Executive Officer Mark Zuckerberg said he had not seen “any meaningful impact” on usage or ad sales since the scandal.  Zuckerberg will testify about the case next Tuesday and Wednesday during two US congressional hearings.  He told reporters that he accepted blame for the data leak, which has angered users, advertisers and lawmakers, while also saying he was still the right person to head the company he founded.

Trump is taking ‘serious look’ at policy options on Amazon

US President Donald Trump said on Thursday he would take a serious look at the policies to address what he is saying unfair business advantages of online retailer Amazon.com Inc.  He accused Amazon of not operating on a level playing field and not paying enough sales tax.  When asked if he wanted to make policy changes related to the company, Trump said “We’re going to take a very serious look at that”.  He further added that the “sales tax situation” was going to be looked at soon by the Supreme Court.

New Quarter of the Year

US stocks index futures fell on the first trading day of the new quarter as the decision by China to raise import tariffs on US products created further global trade war fears while technology stocks showed little signs of recovery.  After the good gains in 2017 which continued into the beginning of this year, the S&P technology index posted its worst performance in March in nearly two years.  Furthermore, the S&P 500 and the Dow Jones Industrial Average posted their worst declines in more than two years in the first quarter ending 2018 being hit by concerns about a possible trade war, rising interest rates and valuation in technology sector.

Oil 

Oil fell to around $69 a barrel this week reversing an earlier rally.  A rise in Russian production and concerns over the US-China trade war was offset by a drop in US drilling activity.  In the week ending March 29, US drillers cut seven oil rigs, down to 797 which was the first decline in three weeks.  The rig count is an indicator of future US oil output.  Brent crude, the international benchmark, fell to $68.78 a barrel.  Oil price has risen from a multi-year low near $27 in January 2016 helped by the production cuts led by OPEC and Russia.  The cuts started in 2017 and are due to run until the end of 2018.

NAFTA

The White House is pushing for a preliminary Nafta deal ahead of the summit to be held next week in Peru.    On Tuesday morning, Trump wrote on Twitter and reiterated a threat to pull out of Nafta if Mexico does not stop people and drugs from flowing in the US from Central America.  He also said that US aid to foreign nations could be at stake.  Nafta negotiators are working under some political calendar pressure in view that elections are due in July in Mexico and mid-term elections in November in the US.  This could complicate matters in reaching a deal and getting it approved.  In order for the agreement to go before the current Mexican Senate and US Congress the negotiations will have to be concluded before the end of April.

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