Vice Premier Liu goes to Washington

Posted by: Paul Donovan

09 May 2019
  • Chinese Vice Premier Liu arrives in Washington for trade talks. At midnight, US consumers of goods partially made in China will be hit with higher US taxes – unless they can avoid paying the tax. For example, US firms could shift production to Canada, import parts from China, and export finished product from Canada to the US (paying no taxes).
  • Markets are not pricing in a collapse in trade talks – that would mean a far bigger equity loss. Instead, markets seem to assume a temporary tax increase with continued negotiations. Economically, the longer there is uncertainty the greater the economic damage (regardless of whether there is a successful conclusion to the talks).
  • Chinese consumer and producer price inflation figures were released. Neither is especially important outside China. US producer price inflation is more meaningful. Costs are rising for US companies, from tighter labor markets and increased trade taxes. Whether those costs squeeze profit margins or are passed on as higher prices is important to investors.
  • Spanish industrial production is due, following stronger German data yesterday. As is nearly always the case, past German numbers were revised stronger as well. However, this stabilization of growth relates to a different era, before uncertainty increased again.

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