Briefing highlights
- Hops for Trump-Xi meeting
- But G20 summit may be ‘new low’
- Markets at a glance
- Economic growth slows
‘False dawn’
Some observers don’t hold out much hope for the G20 summit in Buenos Aires.
First, Saturday’s hyped meeting between trade warriors Donald Trump and Xi Jinping probably won’t fully ease their tariff tensions, said Andrew Kenningham, chief global economist at Capital Economics in London. And second, both the summit and the G20 as a group seem irrelevant to the world’s economic prospects, he said.
What comes out of the meeting could be key for how markets open Monday, given that this trade battle has alternately buoyed or deflated the hopes of investors.
“The most that can reasonably be hoped for from talks between Xi Jinping and Donald Trump at this weekend’s G20 meeting is an agreement which temporarily reduces U.S.-China tensions,” Mr. Kenningham said of the U.S. and Chinese leaders.
“We don’t know what presidents Trump and Xi will decide at their dinner meeting on Saturday,” he added in a report.
“But it seems likely that the Chinese will bring to the table something similar to the offer they made to the U.S. in June. This could include a pledge to step up imports of soybeans and oil from the U.S., greater market access for foreign firms, and improved enforcement of intellectual property rights.”
Mr. Trump blew off the same suggestion when it was last proposed. But he just might now agree to delay his threatened tariff increase on US$200-billion of Chinese imports to 25 per cent from 10 per cent, which is supposed to come into effect in January.
“However, it is highly unlikely that any agreement will mark the start of a complete retreat from the trade war,” Mr. Kenningham warned.
There aren’t clear signals going into the meeting. Reports suggest Washington and Beijing are examining the possibility of an agreement that would see the U.S. delay more tariffs while discussing with China reforms to its economic policies.
“Chinese and U.S. officials have discussed holding a round of trade talks in Washington on Dec. 12-15, depending how Trump-Xi talks go this weekend,” said Elsa Lignos, Royal Bank of Canada’s global head of foreign exchange strategy in London.
“Our best guess is the dinner will go well enough for mid-December talks, but those talks will not yield the breakthrough to avoid Jan. 1 tariffs.”
Mr. Trump, meanwhile, said Thursday that the Americans are “very close to doing something with China but I don’t know that I want to do it.” He added that he’s open to an agreement but “frankly, I like the deal we have right now.”
President Donald TrumpReuters
Mr. Trump is also backed by many in Congress and business in his fight against theft of intellectual property, Mr. Kenningham said, adding that “most importantly, a hard line on trade policy towards China is popular with the electorate.”
“President Trump has already said he is close to a deal on trade with China, he’s just not sure that he wants to do it, which raised some optimism that some form of fudged compromise might come out of the weekend meeting between presidents Trump and Xi,” said CMC Markets chief analyst Michael Hewson.
“The Chinese foreign ministry has said this morning it hopes that the U.S. can show sincerity and meet China halfway in talks. We shall see, but as the song says it takes two to tango, and it’s not immediately clear that the U.S. wants to.”
Markets are already skeptical, with stocks hurt “by fears of an intensification of trade war tensions between the U.S. and China, and sentiment has taken a further knock ahead of a meeting between German car makers and the White House that many worry will simply give the president an opportunity to grandstand on a subject very close to his heart – tariffs,” said IG chief market analyst Chris Beauchamp.
“While markets, as the saying goes, ‘climb a wall of worry,’ it would be nice to get at least one bit of good news. At present, that hope seems misplaced.”
Even if the two do reach a deal, investor optimism may be temporary, said markets economist Oliver Jones, Mr. Kenningham’s colleague at Capital Economics.
“It would be highly unlikely to mark a real turning point in the trade war,” Mr. Jones said.
“So even if a deal is struck, we think that any further relief for trade-sensitive assets will be short-lived,” he added.
“The assets which suffered the most as trade tensions escalated earlier this year have started to do a bit better,” and that could “run a bit further” if the leaders in fact strike a deal.
Still, any deal would be only a temporary reprieve, potentially delaying the tariff hikes but not solving the “underlying grievances” between the U.S. and China.
President Xi JinpingPaul White/The Associated Press
“There’s little political incentive for the key decision-makers on either side to roll back the measures already imposed,” Mr. Jones said.
“So whatever is served up at Trump and Xi’s dinner is unlikely to keep investors satisfied for long. And the recent outperformance of trade-sensitive assets will probably prove to be a false dawn.”
Then there’s the wider G20 and a summit that “looks like a sideshow” amid the U.S.-China meeting, Mr. Kenningham said.
“The group is likely to cobble together a (turgid) statement covering the whole gamut of policies, including monetary and fiscal policy, corporation tax, etc. But few are likely to read it.”
Mr. Kenningham recounted the group’s past decade, in particular how its leaders came together to fight the 2008-09 financial crisis. But it has been downhill of late, as the G20 didn’t live up to its role as the group for global policy making.
“After a good start in 2008, the annual leaders’ summit soon deteriorated into a forum for wrangling over fiscal and monetary policy, and was later the venue for the U.S. to cajole European politicians into standing behind their own currency,” Mr. Kenningham said.
“And the rotating presidency often abused its position to pursue pet projects, none of which came to anything.”
Now, he added, “the G20 has reached a new low, in which the main point of interest is how rapidly, and how far, the world’s two largest economies will raise tariffs on one another’s exports.”
Read more
Markets at a glance
Read more
Economic growth slows
Economic growth in Canada slowed in the third quarter to an annual pace of 2 per cent.
Today’s report from Statistics Canada has been expected to show just that, as housing markets and consumer spending slowed down.
The economy showed strength in mining and refining, but residential investment declined 1.5 per cent in the quarter, and the pace of household spending slowed.
“Canada had a mediocre third quarter, with some troubling details for what lies ahead, as business investment spending fell and the quarter ended with a decline in September,” said CIBC World Markets chief economist Avery Shelfeld.
“These aren't the sort of numbers that back a rate hike in December, and we'll need to see much better results for October, and at least a hint of good news on oil, to support our call for a January hike,” Mr. Shenfeld added as to what he expects from the Bank of Canada.
“Risks are growing towards pushing that next hike further into 2019.”
Michael Babad