Not so good apparently! Gross Domestic Product figures have grown by their slightest margin on record since official observations began on Chinese economic growth in 1992. Still, the economy posted a growth rate of 6.2% year-on-year for the second quarter of 2019 showing that whilst growth is still resilient, the emerging market economy is far from the relentless double digit growth seen less than a decade ago. Trump’s Twitter explanation was that, you guessed it, punitive measures on trade are working! And, for once, his analysis isn’t so worthy of the finger point his program The Apprentice has become famed for.
Proactive fiscal management by Chinese Authorities have protracted 6-handle growth at least for now. An immediate reaction by authorities to pursue tax cuts to spur domestic consumption following the imposition of tariffs has, to a visible degree, insulated the headline GDP growth figure showing that some slack in international exports has been taken up by domestic consumption. However, we must ask how long a tax-break-driven economic boost can last and therefore, how long China will be willing to ensure punitive economic tariffs before confirming to US trade pressure?
Markets don’t appear to have taken the data as an immediate signal that we should expect a trade breakthrough just yet. Defensive demand for the Yen, the Swiss Franc and holding long positions on XAUUSD all remained firm. Signals from the US administration including from Trade Secretary Steve Mnuchin and Representative Robert Lightheizer suggesting further interactions with China in the coming days of this week also failed to change market conditions significantly with the Dollar continuing to suffer from rate cut expectations during its July 31st policy meeting.
Reports yesterday that Trump is also considering opening the Pandora’s box of Russian trade and foreign policy negotiations also made headlines. As if that wasn’t enough talks have also begun surrounding the US debt ceiling ahead of the September deadline. These moves take the coverage of battles that Trump’s taking on to every continent bar Antarctica and probably more than three quarters of the Earth’s land mass. The US biting off more than it can chew could lead to an exacerbation of present tensions further increasing the calls for monetary support from the US Federal Reserve adding to the global bond rally and developed FX sell-off.
Today members of the European Parliament will sit to ratify the nominations of several key appointments to EU posts. The voting will include Commission President hopeful Ursula von der Leyen who has resigned as German Defence Minister ahead of the vote on her candidacy. A failure by MEPs to confirm the nominations made by the European Council would demonstrate political friction within the institution generating fears of institutional deadlock and likely cause a weakening of the Euro.
Discussion and Analysis by Charles Porter