Trump to shed light on China re­la­tions

In­vestors will wel­come in­sights

The Star Early Edition - - BUSINESS REPORT INTERNATIONAL - Hugh Law­son

US AND Chi­nese data and an ex­pected news con­fer­ence by US Pres­i­dent-elect Don­ald Trump in the com­ing week may shed some light on the state of the world’s two big­gest economies – and the out­look for re­la­tions be­tween them.

Trump, who takes of­fice on January 20, said he would hold a news con­fer­ence on Wed­nes­day. It would be his first since win­ning the elec­tion.

In­vestors will wel­come any in­sights he may give on his poli­cies re­gard­ing China as well as the do­mes­tic econ­omy.

Key pri­or­i­ties

“This oc­ca­sion could be an op­por­tu­nity for Trump to high­light key pri­or­i­ties, with mar­kets es­pe­cially alert to de­tails re­gard­ing tax re­form, in­fra­struc­ture spend­ing plans and his China trade stance,” Stan­dard Char­tered said in a weekly note to in­vestors.

An­a­lysts are con­cerned about the eco­nomic and po­lit­i­cal im­pacts of Trump’s re­la­tions with the rest of the world.

“Trump’s plans for trade and for­eign pol­icy in par­tic­u­lar are fraught with con­sid­er­able threats to the real econ­omy,” Com­merzbank cur­rency strate­gist Thu Lan Nguyen wrote, sug­gest­ing a trade war with China or Mex­ico might do the US more harm than good.

On the US do­mes­tic front, ex­pec­ta­tions of heavy spend­ing un­der Trump to cre­ate jobs in the Rust Belt states that swung the elec­tion his way helped lift con­sumer sen­ti­ment to mul­ti­year highs and driven up Trea­sury yields in a burst of “Trumpfla­tion”.

One gauge of that sen­ti­ment would be US re­tail sales data for De­cem­ber due on Fri­day. They were ex­pected to show a 0.7 per­cent rise from the pre­vi­ous month, ac­cord­ing to a Reuters poll of econ­o­mists.

An­other will be the Univer­sity of Michi­gan con­sumer sen­ti­ment in­dex, also out on Fri­day, which econ­o­mists polled by Reuters ex­pected to come in at 98.5, the high­est read­ing since early 2004.

As this year pro­gresses, some econ­o­mists see US wage growth and tax cuts out­weigh­ing the im­pact of higher in­ter­est rates and oil prices to keep shop­pers driv­ing the econ­omy for­ward.

“Higher in­ter­est rates and ris­ing gaso­line prices will be head­winds for the con­sumer sec­tor, but solid labour in­come and the prospects for personal tax cuts will even­tu­ally sup­port de­cent con­sump­tion growth,” Credit Suisse said in a weekly re­port. In a re­flec­tion of the pro­longed weak­ness of China’s yuan, data showed Bei­jing’s forex re­serves dwin­dled to just more than $3 tril­lion (R41.3trln) in De­cem­ber – the low­est level in nearly six years.

While the yuan soared in re­cent days, help­ing cre­ate a liq­uid­ity squeeze in Hong Kong, a Reuters poll showed it was ex­pected to slide at least 4 per­cent more this year, hurt by fis­cal stim­u­lus and faster in­ter­est rate hikes in the US.

“It re­mains to be seen whether tight­en­ing yuan liq­uid­ity con­di­tions in Hong Kong and re­ports of cap­i­tal con­trols be­ing in­tro­duced will be suf­fi­cient to halt the slide” in the yuan, an­a­lysts at In­vestec said in a weekly note to clients.

Vi­cious cy­cle

An­other fear for in­vestors may be whether the pro­longed slide of the yuan sets off a vi­cious cy­cle of more out­flows, cur­rency de­pre­ci­a­tion and ris­ing in­fla­tion, on which China is­sues De­cem­ber data to­mor­row.

Adding to China’s prob­lems, Trump has vowed re­peat­edly to la­bel Bei­jing a cur­rency ma­nip­u­la­tor, a move that would heighten ten­sions be­tween the two ma­jor trad­ing na­tions.

The fall in ster­ling since the Brexit vote has so far failed to boost Bri­tish in­dus­trial pro­duc­tion, a poor sign for over­all eco­nomic growth in the last quar­ter of last year.

Man­u­fac­tur­ing and broader in­dus­trial out­put data due on Wed­nes­day are ex­pected to show a re­bound in Novem­ber from a sharp con­trac­tion in Oc­to­ber, although the rise may not be enough to have a pos­i­tive ef­fect on fourth-quar­ter gross do­mes­tic prod­uct data due out at the end of January.

“We tend to the view that the man­u­fac­tur­ing sec­tor prob­a­bly ex­panded only very mod­estly in (the fourth quar­ter). How­ever, this is un­likely to be the case for in­dus­trial pro­duc­tion, where a sec­ond suc­ces­sive quar­terly de­cline ap­pears vir­tu­ally in­evitable,” In­vestec chief econ­o­mist Philip Shaw said in a note.

‘Trump’s plans for trade and for­eign pol­icy… are fraught with… threats to the real econ­omy.’

PHOTO: AP

Pres­i­dent-elect Don­ald Trump speaks dur­ing a rally at the Gi­ant Cen­ter. Trum who takes of­fice on January 20 says he will hold a news con­fer­ence on Wed­nes­day.

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