(19 FEBRUARY 2019)DAILY MARKET BRIEF 2:Sino-American talks repeat
Since trade talks have resumed at the end of January 2019, it seems that nothing much has advanced. Yet the new round of talks in Washington starting today should provide a clear breakthrough as the March 1 deadline nears, while investors remain highly optimistic on the matter.
Similarly to last week, both sides are expecting to address the softer structural issues relating to China's agreement to purchase a significant amount of US goods while higher-level talks will be taking place on Thursday - Friday with China's Vice Premier Liu He, US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and other senior officials. Still, a memorandum of understanding remains the key objective that both countries are aiming for and which could trigger a 60-day postponement of US tariffs of 25% on USD 200 billion of US imports from China which would provide sufficient time to develop a detailed roadmap including key deadlines for resolving remaining issues (i.e. technology transfer and industrial subsidies).
When looking at recent data releases, it appears that China's economy remains solid, with a rebound of current account balance of USD 54.6 billion (prior: USD 23.3 billion), higher than the 3-year average while the slowdown in inflation figures for January (+1.70%) confirms that a downside risk for the Chinese economy remains. Looking on the brighter side, the impressive rise in credit extension for the period of January suggests the stimulus engine has been turned on.
Currently trading at 6.7655, USD/CNY will be trading sideways as traders closely monitor the outcome of this week's talks.
