• Weak data confirms slowdown - but markets are calm

  • US-China high-level trade negotiations confirmed for 30-31 January

  • Wall Street Journal story adds to signs that a trade deal is coming

  • China announced further opening up for inbound financial investments

More weak data but markets are calm

Chinese trade data for December grabbed the headlines this week. They revealed a big drop in both exports as well as imports. A big drop in car sales of more than 10% y/y also attracted attention. Finally, data on money growth (a good leading indicator) was also soft but is stabilising at a low level. Equity markets reacted fairly calmly, however, and actually increased this week.

Comment. It is not a big surprise that the economy weakened further into year-end and a lot of bad news is already priced into equity markets. The weak car sales have to be taken with a grain of salt. The very negative annual growth rate is partly due to the comparison with a very high level at the end of 2017, because a tax break on small cars was removed at the turn of 2017/2018. In coming months, the annual growth rate of car sales is very likely to shoot higher simply because of the big drop in sales in January and February last year. In addition, the Chinese leadership is said to prepare measures to lift auto sales.

When it comes to money growth, we expect it to move gradually higher soon as monetary easing will start to feed through. The top chart on page 2 shows that lower yields typically translate into higher money growth (and thus activity) with a time lag of three-six months. We continue to look for the Chinese economy to recover gradually from Q2 as stimulus kicks in with more force and a trade deal is reached by Q2 (75% probability).

High-level trade talks confirmed – Trump wants a deal

This week, China confirmed that top negotiator Liu He will head a delegation to Washington in late January. He will face US Trade Representative and China hawk Robert Lighthizer in the first round of high-level trade talks since the ceasefire started. Talks in Beijing last week was on a lower level and was focusing on Chinese purchases of US goods. The talks between Liu He and Robert Lighthizer are likely to address some of the more difficult issues surrounding China's industrial policies and technology transfer.

The Wall Street Journal (WSJ) reported on Thursday that in internal strategy meetings, Treasury Secretary Stephen Mnuchin had proposed that the US should ratchet back tariffs on China in a move to pry concessions out of it. The move has been opposed by Lighthizer, according to the article. Maybe as important, the article also states that ‘in past China discussions, Mr. Trump has sided with Mr. Lighthizer on tariffs, rather than Mr. Mnuchin. But this time, the president has made it clear he wants a deal'. —and is pressing Mr. Lighthizer to deliver one, according to people familiar with the discussions' (our underlining).


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