Trump to shed light on China relations
Investors will welcome insights
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.
“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.
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.’
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.