Six Events To Watch Next Week


Parliament returns from its holiday recess, and the Brexit debate will be taken up again. However, the immediate focus is on the local elections that will be held on May 2. Although the Tories have made a mess of Brexit from the get-go, Labour's agenda and rhetoric estrange voters and prevents it from truly capitalizing on the situation, though some polls have just begun showing Labour edging ahead. If the UK is to leave the EU, their other commitments (see Good Friday Agreement) circumscribes their degrees of freedom, and some form of a customs union arrangement continues to be the most likely.

Meanwhile, the UK economy appears to be going relatively well. Employment growth is strong and retail sales jumped 1.1% in March. Retail sales rose by an average of 0.8% a month in Q1 19 after a flat average in Q4 18 and a 0.3% average gain in Q3 18. The manufacturing sector that is contracting in the eurozone (PMI) is surging in the UK. The 0.9% rise in February manufacturing output followed a 1.1% gain in January. The two-month average is the strongest since the end of 2016.

US-China Trade Talks

Officials continue to assure investors that progress is being made in the trade talks between the world's two largest economies. US Trade Representative Lighthizer is headed to Beijing later this month, while Vice Premier Liu will return to the US in early May. Late May has long been identified as a possible timeframe for the two leaders to meet.

China has already reportedly stepped up its purchases of soy and swine from the US. Much of the US demands appear to have been agreed upon by China, but rather than this being a result of the savvy American negotiators, it seems that China was moving in this direction, with the help of past American and European pressure, as well as, most importantly, its internal dynamics.

The dollar depreciated by about 10% against the yuan in 2017, when it fell against most currencies. It recouped these losses last year, largely in line with its broader performance and returned toward CNY7.00 area. The yuan has strengthened against the dollar this year. Its 2.4% appreciation makes it among the strongest currencies in the world, behind the Russian ruble's 8.8% gain and three Latam currencies (Chilean peso up 4.7%, the Mexican peso up 4.6%, and the Colombian peso, which has risen 2.8%). It is not clear what commitments the US is making. Treasury Secretary Mnuchin seemed to accede to the Chinese demand that the enforcement mechanism is two-way, fair, equal, acknowledging that China may be in its rights to act if the US fails to live up to its commitments. That said, it might be more convincing for many if Lighthizer were to make a similar commitment.   

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Read more by Marc on his site Marc to Market.

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