Need for concessions
■ Oxford Economics said in a note that China’s economic growth in 2019 could fall well below 6 per cent, and said prospects for nearterm easing in tensions were low.
But it added, “The likelihood of de-escalation will rise over time as the increasing economic impact in the US will make the Trump team less combative, and China realises that it will be hard to integrate more into the global economy without some concessions regarding its specific economic model.” it’s just a question of how the Chinese can save face and say ‘alright we’re going to change, going to open up wider access not only to the US but to the EU and Japan’,” said Christopher Peel, chief investment officer at Tavistock Wealth in London.
“Their economy is exportled, they can’t afford for it to go out of control,” he told Reuters.
Economic hit
The new US tariffs will begin on September 24 at 10 per cent and will increase to 25 per cent by the end of 2018, with Bank of America Merrill Lynch forecasting a 0.5 percentage point decline in Chinese gross domestic product (GDP) growth for 2019 to 6.1 per cent.
Investors were relieved that the latest escalation was less severe than some market participants had expected, with Asian stocks rising yesterday and US Treasury yields near four-month highs.
China remains unafraid of the “extreme measures” taken by the United States, the People’s Daily newspaper said in a front-page article in its overseas edition yesterday.
“Where we are today, is in a period of relative calm as US bond yields probe their highs, and we become accustomed to trade rhetoric and perhaps, blase about the economic damage it will cause,” said Societe Generale strategist Kit Juckes. “All things considered, though, the tariff spat could have been a lot worse. Investors reacted relatively well to the news.”
European share markets followed Asian counterparts higher and US equity futures were modestly higher after Wall Street’s bounce on Tuesday.
The dollar continued to lose ground, slipping 0.3 per cent to stay near seven-week lows against a basket of currencies. In another sign of markets’ newfound optimism, the safe-haven yen slipped to twomonth lows against the dollar. The Bank of Japan kept policy unchanged as expected.
The British pound was volatile, rising half a per cent to an nine-week high of $1.3215 after data showed inflation hitting a six month high.
China is out of bullets. The fight is done and dusted... Their economy is export-led, they can’t afford for it to go out of control.” Christopher Peel | Chief investment officer at Tavistock Wealth in London