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James Hyerczyk
US-China Trade Talks
US-China Trade Talks

The major Asia stock indexes are trading mixed on Thursday amid concerns over several factors including the US-China trade relations, the latest Federal Reserve minutes and lower-than-expected Chinese inflation data. The events are only causing a mild reaction rather than the volatile moves that we’ve seen in recent weeks. This suggests investors are beginning to price in the impact of these events.

At 0542 GMT, China’s Shanghai Index is at 2545.89, up 1.55 or +0.06 percent. South Korea’s KOSPI Index is at 2065.27 and Australia’s S&P/ASX 200 is at 5795.30, up 17.00 or +0.29%.

On the downside, Japan’s Nikkei 225 Index is trading 20200.02, down 227.04 or -1.11 percent and Hong Kong’s Hang Index is at 26393.90, down 68.42 or -0.26%.

U.S.-China Trade Talks:  Positive Steps, but Both Sides Playing Hardball

On Wednesday, the United States and China concluded their latest round of trade negotiations in Beijing after an unscheduled third day of talks. The next step in the process is to wait for further guidance on the talks, however, recent comments from President Trump suggest the talks went well.

Both countries issued statements shortly after the talks. On the surface, the statements suggest the negotiations are gaining positive momentum toward a basic agreement within the next couple of months. This would put it on pace for the end of the tariff truce between the U.S. and China on March 1. However, with both sides playing hardball, there are challenges ahead.

However, political risk consultancy Eurasia Group said in a note … “US trade hawks are fighting an intense rear-guard action to limit the scope of that agreement and keep the pressure up on Beijing.”

“If a deal is reached, it will almost certainly remain fragile and there will still be a long road ahead of the removal of US tariffs already imposed,” they said.

Analysts at Singapore’s DBS Group Research said, “US demands for verification and enforceable targets on intellectual-property rights, transfer of technologies and non-tariff barriers may not be that easily addressed. This sets up room for volatility in the lead up to the 1st March deadline where negotiations on these issues need to be concluded.”


Fed Minutes Reiterate Powell’s Dovish Comments

The U.S. Federal Reserve minutes from its December policy meeting reiterated comments from Fed Chairman Jerome Powell last Friday with the theme centering on patience regarding monetary policy.

In the minutes, Federal Open Market Committee members acknowledged muted inflation in the U.S., meaning the Fed can “afford to be patient about further policy firming.” The minutes also indicated that some policymakers think a “relatively limited amount” of rate hikes may be coming in 2019.

China Consumer Inflation Misses Mark

The slowdown in China’s economy continued to spread in December. This time affecting consumer inflation. According to official government reports, China’s December consumer inflation (CPI) rose 1.9 percent on year. That was lower than the experts’ expectations of 2.1 percent growth. Producer inflation rose 0.9 percent on-year in December, which was lower than the 1.6 percent economists were expecting.

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