“US-China Close To A Trade Deal? …”

US-China Close To A Trade Deal?

After meetings in Beijing last week, China and the US are in intense negotiations to end months of trade war that has rattled US global markets.  Chinese Vice Premier Liu He met with President Donald Trump in the White House with the goal to reach an agreement on core issues.   Investors were enthusiastic on hopes that talks were moving in a positive direction.  On Thursday US President Donald Trump said that the United States and China were close to a trade deal that could be announced within four weeks, while he warned Beijing that it would be difficult to allow trade to continue without a pact.  Whilst speaking with reporters at the White House at the start of the meeting with Chinese Vice Premier Liu He, Trump said some of the tougher points of a deal had been agreed but there were still differences to be bridged.  Trump further said he would hold a summit with the Chinese President Xi Jinping if there was a deal.  Meanwhile, in a message conveyed by Liu He, Xi assured Trump that text of the China-US trade could be finalised soon. Trump declined to say what would happen to the US tariffs on $250 billion worth of goods as part of a deal.  Whilst China wants the tariffs lifted, US officials are wary of giving that up at least for now.  Goods trade between the US and China totalled $660 billion last year, according to US Census Bureau data, consisting of imports of $540 billion from China and $120 billion in exports to China.  Amongst the remaining pending points, Trump mentioned tariffs and intellectual property theft, and said that he would discuss tariffs with Liu in their meeting.

US Weekly Jobless Claims

Despite the slow economic growth, the number of Americans filing applications for unemployment benefits dropped to a more than 49-year low last week, signalling that labour market strength is sustainable.  The Labour Department said on Thursday that initial claims for state unemployment benefits declined 10,000 to a seasonally adjusted 202,000 for the week ended 30^th March, the lowest level since early December 1969.  Although job growth has slowed from last year, the pace of increase, however remains more than sufficient to keep up with the growth in the working age population, holding down the unemployment rate.

US Retail Sales

Mixed data offered hopes that the US economy is not slowing.  Although US retail sales unexpectedly fell in February, there was a rebound in factory activity in March and strong increase in construction spending.   Retail sales dropped 0.2 percent as households cut back on purchases of furniture, clothing, food and electronics and appliance as well as building materials and gardening equipment.  A report from the Commerce Department showed that construction spending rose 1 percent to a nine-month high in February after surging 2.5 percent in January.  Another report from the department showed that business inventories increased 0.8 percent in January, matching the gains in December.  Although the strong inventory build suggests slowing demand, GDP forecasts for the first quarter were lifted.

Eurozone Factory Activity And Services Sector Data

The IHS Markit’s March final manufacturing Purchasing Managers’ Index declined for an eight month at 47.5 from 49.3 in February, just below a flash estimate and its lowest reading since April 2013.  Factories in the Eurozone had their worst month for almost six years in March and indicators that are forward looking, pointed to gloomy times.  An index measuring output change, that feeds into a composite PMI which is seen as a good gauge of economic health, sank to 47.2 from 49.4, its lowest since April 2013.  It is the second straight month it has reached a below 50 level that separates growth from contraction.  Optimism about the coming year has deteriorated sharply.  The future output index dropped to 55.5 from February’s 56.7 (the lowest since December 2012).  In March, factories barely increased headcount.  Meanwhile, the Services Purchasing Managers’ Index (PMI) rose to 53.3 from 52.8 ahead of the estimate of 52.7.

German Industrial Orders

German industrial orders dropped at their sharpest rate in more than two years in February amid a fall in foreign demand, and the concerns of a weak kickstart of Europe’s biggest economy.  Data from the Economy Ministry showed on Thursday that contracts for German goods slumped by 4.2 percent in February, whilst in January the drop was of 2.1 percent (a revised drop of 2.6 percent).  This unexpected fall was the sharpest since January 2017.  Data showed that foreign orders were down 6 percent in February, with a 7.9 percent drop from non-euro zone countries and a 2.9 percent within the eurozone.  Meanwhile domestic contracts dropped by 1.6 percent.

Europe’s March Business Activity

Business activity in March across the eurozone was sluggish according to a survey, suggesting a downturn in manufacturing that is slowly impacting Europe’s dominant services industry.  The IHS Markit’s eurozone Composite Final Purchasing Managers’ Index (PMI) which is considered as a good measure of overall economic health, fell to 51.6 in March (51.9: in February) which is close to the 50- mark separating growth from contraction.

Brexit

On Monday lawmakers failed to find a majority in a last move to break the Brexit impasse. Prime Minister Theresa May said she would seek another Brexit delay to agree an EU divorce with the opposition Labour leader Jeremy Corbyn.  On Wednesday May met Corbyn.  The meeting was “useful, but inconclusive” and the talks would continue, said Corbyn.  May said that any plans have to include the current Withdrawal Agreement that she agreed with the EU in November and which the bloc says it will not reopen. Meanwhile, the head of the bloc’s executive European Commission, Jean-Claude Juncker said that the EU will not grant Britain another short delay to Brexit if UK lawmakers fail to ratify the stalled divorce agreement by 12^th April.    On Wednesday, the lower house of the British parliament approved legislation which would force Theresa May to seek a Brexit delay to prevent a potential disorderly Brexit on 12^th April without a deal.  In order to avoid an abrupt no deal Brexit on 12^th April, May must present a summit of EU leaders next Wednesday with a plausible strategy to win approval in parliament for the Withdrawal Agreement that she negotiated with Brussels.  On Friday Theresa May wrote to European Council President Donald Tusk asking for a delay of Brexit until up to 30^th June, but said she still hopes to get Britain out of the EU earlier to avoid it participating in European elections.

UK Car Buyers

The Brexit impasse and concerns over the future of diesel vehicles drove the demand for cars in the UK to a six-year low last month. According to the Society of Motor Manufactures and Traders, car sales dropped 3.4 percent year-on-year to 458,054 passenger vehicles as consumers stayed away from showrooms during what is usually a strong month for new purchases because of a number plate changeover.   The CEO’s association said, “March is a key barometer for the new car market, so this fall is of clear concern.”  It is clear that Brexit is hurting different corners of the economy.

Oil

Oil prices on Tuesday hit their highest level for 2019, as Brent crude approached $70 a barrel, on the prospect that more sanctions against Iran and more disruptions in Venezuela could further deepen supply cuts by OPEC.  Brent futures reached a high peak since 13^th November at $69.52 a barrel and US West Texas Intermediate (WTI) crude rose 1.61 percent to settle at $62.58 a barrel after touching $62.75 the highest since 7^th November.    Brent has gained nearly 30 percent this year, while WTI has increased nearly 40 percent.  According to an official, the US is considering more sanctions against Iran.  Meanwhile, three of eight importers that were granted waivers by Washington to buy oil from Iran have now cut their shipments to zero, according to a US official, adding that improved global oil market conditions would help reduce Iranian crude exports further. The eight importers that were granted waivers to ensure low oil prices and no disruption to the oil market internationally are China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea.  The waivers are due to expire on 2^nd May.  On Thursday Brent oil prices resumed their increase towards $70 per barrel, as expectations of tight global supply outweighed pressure from rising US inventories and production.

Markets Wrap  

A surprise rebound in China’s manufacturing data and better than expected US numbers, pushed the S&P 500 to near six months highs on Monday.  Global equities also advanced on the encouraging surveys out of China and the US.  Meanwhile US stocks pulled back on Tuesday after a three-day surge, as a profit warning from the drugstore chain Walgreens Boots hit the pharma sector.  Data on Tuesday was not particularly encouraging with new orders for key US-made capital goods slipping in February and shipments flat.  Orders for non-defense capital goods excluding aircraft or core capital goods orders, a closely watched proxy for business spending plans, slipped 0.1%. European shares were muted on Tuesday following their strongest two-day rally since January caused by the uncertainty over Brexit and the deadlock in Britain’s parliament.  Most European bourses were mixed but Britain’s exporter-heavy FTSE 100 was notably higher, helped by a weaker sterling.    On Thursday European stocks took a break after hitting an eight-month high in the previous session, as the focus was on banking mergers whilst investors waited for any progress in the US-China trade talks. On Thursday Asian shares markets consolidated their weekly gains as the China-US trade talks produced a lot of headlines but no conclusions.  Markets were also cautious ahead of the March US job report.

Currencies

On Tuesday the euro fell to a three-and-a-half week low and stood near its weakest level reached in June 2017 as investors took the opportunity of strong data out of the United States to buy the dollar.  Whilst survey data on Monday showed factories in the eurozone had their worst month for almost six years in March, economic data from the United States offered more hope.  This further confirmed the concerns that while both economies are facing a slowdown, the euro region is set to come out worse.  On Wednesday, the Euro gained against the US dollar as hopes of a trade deal between the US and China boosted risk appetite globally.  Meanwhile the Australian dollar outperformed on strong local and Chinese economic data.  On Thursday the euro remained stuck near a one-month low amid more signs of weakness in the German economy that reduced the optimism about the US-China Trade talks and a softer Brexit. In 2019, despite the slowdown in the euro economy, the euro has remained in the range of $1.12-$1.16 and prompted new stimulus from the European Central Bank.  The euro fell to a session low on Thursday after a report that Italy would slash its growth forecasts, prompted fears about weakening growth in the region. Meanwhile, sterling slipped, as concerns rose that Britain may be headed for a longer than expected Brexit delay. On Friday the dollar was lifted by expectations that the trade dispute between the US and China would be resolved.  The greenback has gained about 0.85 percent against the safe-haven Japanese Yen, thanks to factors such as strong US economic data and broad improvement in risk appetite.

Bitcoin

Bitcoin climbed to its highest in over five months on Tuesday, after a major order by an anonymous buyer, set off a frenzy of computer-driven trading.  The original cryptocurrency soared as much as 20 percent in Asian trading, breaking the $5,000 level for the first time since mid-November.  Whereas, bitcoin surged to near $20,000 in late 2017, a bubble driven by retail investors, the cryptocurrency market was relatively calm until Tuesday with bitcoin trading in the levels of around $3,300 and $4,200.  Factors such as security breaches and regulatory uncertainty were amongst the reasons for the lack of enthusiasm for this market.

Malta:  Government Expenditure On Social Security Benefits

Social Security benefits amounted to EUR 965.2 million by the end of 2018, 3 percent higher than 2017.  The reason for such an increase in Social Security Benefits expenditure, was a EUR 29.3 million rise in Contributory Benefits spending, while Non-Contributory Benefits outlay dropped by EUR 0.9 million.

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