Trump and Xi Plan Trade Talks at the G-20 Summit President Trump and Chinese President Xi Jinping agreed to meet in Japan next week, lifting financial markets and spurring hopes for a trade truce that could stave off a fresh round of tariffs.
In a Twitter message on Tuesday, Mr. Trump said he had a “very good” telephone conversation with Mr. Xi, setting the stage for a summit on the sidelines of the Group of 20 leading global economies meeting in Osaka.
“We will be having an extended meeting next week at the G-20 in Japan,” the president tweeted. “Our respective teams will begin talks prior to our meeting.” (…)
According to Chinese state media, Mr. Xi told Mr. Trump in their conversation Tuesday that China hopes “the U.S. will treat Chinese companies fairly,” in what was widely seen as a reference to Huawei. (…)
The proposed $300 billion in tariffs are now the subject of public hearings held by the U.S. Trade Representative in Washington. If Mr. Trump and Mr. Xi fail to get talks restarted in Japan, those levies could be imposed as early as next month.
On Monday, the first day of the hearings, 47 of the 50 speakers asked that their industry be spared the tariffs; only two business representatives spoke in support of the Trump administration’s plan. (…)
It took me some digging but I was very curious to know who initiated the call after Trump threatened to tax China even more if Xi refused to meet him next week. Trump himself uncharacteristically did not mention who requested the call which made me believe he asked for it. No surprise, Xinhua, the Party’s news agency, disclosed Trump made the first move (my emphasis):
Chinese President Xi Jinping held a telephone conversation with his U.S. counterpart, Donald Trump, on Tuesday at the latter’s request.
Trump said he looks forward to meeting Xi again during the upcoming Group of 20 (G20) summit in the Japanese city of Osaka later this month, and conducting in-depth discussions on bilateral ties and issues of common concern.
The U.S. side, he added, values its economic and trade cooperation with China, and hopes that the teams on both sides can conduct communication, and find a way to resolve the current dispute as soon as possible.
Trump said he believes the entire world hopes to see the United States and China reach an agreement.
For his part, Xi said some difficulties have recently occured in China-U.S. relations, which is in the interests of neither side.
Reiterating that both countries gain from cooperation and lose from confrontation, Xi said the two sides should, in accordance with the consensus he has reached with Trump, push forward the China-U.S. relationship featuring coordination, cooperation and stability on the basis of mutual respect and mutual benefit.
As the world’s two biggest economies, China and the United States should jointly play a leading role in pushing for positive outcomes at the G20 Osaka summit, so as to inject confidence and vitality into the global market, added Xi.
The Chinese president said he stands ready to meet Trump in Osaka to exchange views on fundamental issues concerning the development of China-U.S. relations.
On economic and trade issues, Xi stressed, the two sides should solve their problems through dialogue on an equal footing, with the key being to accommodate each other’s legitimate concerns, adding that China hopes the U.S. side can treat Chinese firms [meaning Huawei] in a fair manner.
Xi said he agrees to have the two countries’ trade teams maintain contact on how to solve the dispute.
This is significant as it suggests that Trump is very anxious to make a deal.
Apple explores moving 15-30% of production capacity from China: Nikkei
Apple Inc has asked its major suppliers to assess the cost implications of moving 15%-30% of their production capacity from China to Southeast Asia as it prepares for a restructuring of its supply chain, according to a Nikkei Asian Review report on Wednesday. (…)
The countries being considered include Mexico, India, Vietnam, Indonesia and Malaysia. India and Vietnam are among the favorites for smartphones, Nikkei said (…)
Trump Suggests He Could Consider Demoting Fed Chairman ‘Let’s see what he does,’ Trump said of Fed Chairman Jerome Powell ahead of major interest-rate decision
(…) “Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others,’’ he tweeted. Later, he added: “German DAX way up due to stimulus remarks from Mario Draghi. Very unfair to the United States!’’ (…)
U.S. Housing Starts Fell in May May’s 0.9% drop is new sign of weakness in the housing market; residential building permits rose.
(…) Residential building permits, which can signal how much construction is in the pipeline, rose 0.3% from April to an annual pace of 1.294 million. That was the strongest monthly rate of growth since December. The pace of starts in April was revised higher, another positive sign. (…) Starts were down 4.7% from May last year. (…)
You need a very sharp eye to notice May’s rise in permits:
Here’s a close-up!
Starts are down 32.4% and 33.1% YoY in the Northeast and the Midwest respectively. Down 0.5% in the West and up 8.1% in the warmer South.
If new home sales remain at current levels, residential construction will have to improve. (The Daily Shot)
Source: Pantheon Macroeconomics
RECESSION WATCH
Economic Outlook from Freight’s Perspective
(…) With the -6.0% drop in May, we see the shipments index as going from “warning of a potential slowdown” to “signaling an economic contraction.” (…)
May’s drop is significant enough to raise the question, “Will the Q2 ’19 GDP be negative?”
The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices and the decline in interest rates have joined the chorus of signals calling for an economic contraction.
Beyond our concern that the Cass Freight Shipments Index is negative on a YoY basis for the sixth month in a row:
- We are concerned about the severe declines in international airfreight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials;
- We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index;
- As volumes of chemical shipments have lost momentum in recent weeks, our concerns of the global slowdown spreading to the U.S., and the trade dispute reaching a ‘point of no return’ from an economic perspective, grow.
Bottom line, more and more data is indicating that this is the beginning of an economic contraction. If a contraction occurs, then the Cass Shipments Index will have been one of the first early indicators once again. (…)
Asian airfreight volumes were essentially flat from June to October 2018 but have since deteriorated at an accelerating pace (November -3.5%, December -6.1%, January – 5.4%, February -13.3%, March -3.6%, -10.2% in April, and the preliminary May -8.1%). If the overall volume wasn’t distressing enough, the volumes of the three largest airports (Hong Kong, Shanghai, and Incheon) are experiencing the highest rates of contraction. Even more alarming, the inbound volumes for Shanghai have plummeted. This concerns us since it is the inbound shipment of high value/low density parts and pieces that are assembled into the high-value tech devices that are shipped to the rest of the world. Hence, in markets such as Shanghai, the inbound volumes predict the outbound volumes and the strength of the high-tech manufacturing economy. (…)
HOW ABOUT RAIL
The slowdown in trucking gets even more troubling when considering that truck tonnage has strongly outperformed rail intermodal since 2016
From the Association of American Railroads:
You have to look pretty hard to find good news in May’s rail traffic data, but disappointing news is easy to find. Total U.S. rail carloads were down 2.1% in May 2019 from May 2018, their fourth straight monthly decline. In May, six of the 20 carload commodities the AAR tracks had carload gains.(…) Ongoing trade disputes aren’t helping intermodal. In May, intermodal volume was down 5.9%, thanks in part to the trade disputes and tariffs that have been applied to imports in recent months. For the first five months of 2019, intermodal was down 2.4% from last year. (…) Approximately half of U.S. rail intermodal consists of imports or exports, so everything that’s going on from a political standpoint regarding trade — tariffs and threats of tariffs, retaliation for tariffs that get implemented, etc. — will impact intermodal.
I look at rail volume excluding coal, grain and oil to get a better sense of what’s happening in the economy: the 6-wk m.a. is down 5.4% in May, back to the 2017 level.
U.S. IP could drop significantly in coming months:
Warning Lights Are Flashing in China’s Money Market
On Sunday, the country’s securities regulator convened a meeting asking big brokerages and funds to support their smaller peers, according to a meeting summary circulated among industry participants Monday. The briefing cited rising risk aversion in money markets after defaults in the bond repurchase market. Some interbank lending rates have moved sharply higher in recent weeks.
China’s short-term lending market for banks and other financial institutions has for years operated under the assumption that Beijing wouldn’t allow big losses in the event of defaults or insolvencies. That confidence has been shaken by regulators’ unusual public takeover of a small, troubled bank in northern China last month—and the even more unusual public admission by the central bank that not all of Baoshang Bank’s liabilities would necessarily be guaranteed. (…)
Worryingly, problems appear to be migrating from the relatively small market for negotiable certificates of deposit (NCDs)—used primarily by small banks—into the much larger bond repo market. Although key one-day and seven-day weighted average borrowing rates remain low, thanks to huge central bank cash injections, longer tenors have marched sharply higher.
Seasonal cash demand ahead of the quarter-end is probably playing a role. But small banks, squeezed out of the market for NCDs, may also be trying to replace a portion of three or six-month NCD funding in the repo market. Since Baoshang’s takeover on May 24, the one-month repo rate has nearly doubled from 2.9% to 5.2%. (…)
2 thoughts on “THE DAILY EDGE: 19 JUNE 2019: Let’s Make A Deal! Recession Watch!”
>> This is significant as it suggests that Trump is very anxious to make a deal.
Or, it suggests that Trump knows that Xi needs an opening to save face, and Trump is willing to give Xi the cover to come back to negotiations.
Yes, but remember that Trump cornered Xi with his threat after getting no signal from China. Either he eventually understood that he needed to help Xi help him, or he just got worried to find himself alone at the alter. Any way, it betrays Trump’s bluff: he wants a deal now.
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