• Weak US data likely to put pressure on Trump soon.
  • China opens up for more infrastructure stimulus, data for May was mixed.
  • The People's Bank of China (PBoC) indicates that 7.0 for USD/CNY is not a 'red line'.
  • Can Xi and Trump bridge the significant gap that has opened up?

The past week did not provide any encouraging news on the trade front. The meeting between US President Donald Trump and China's President Xi Jinping at the G20 summit in two weeks will be crucial for the next stage of the trade war. When the Chinese delegation left Washington on 10 May, the two sides agreed that talks would continue in Beijing but no meetings are scheduled and we hear no stories of preparations for the Xi-Trump meeting. Actually, China has not even confirmed that Xi will meet with Trump.

Trump showed no signs of softening his stance this week. On Monday, he stated that if Xi would not meet at the G20 summit, he would move on with tariffs on another USD300bn of goods. Then, on Friday, he said 'it doesn't matter' if Xi Jinping shows up. Trump continues to signal confidence that China will go back to the 'old' deal: 'I can tell you China would like to make a deal very badly. They're getting hurt by the tariffs because companies can't pay the tariffs, so they're leaving China .' In another interview, he said 'we had a deal with China. Unless they go back to that deal, I have no interest '.

However, the Chinese side shows no sign of a change in its stance. Xinhua yesterday posted yet another story reiterating 'China will not give ground on issues of principle ' and 'China's attitude is very clear. The United States must change its attitude, show sincerity and correct its wrong practices if it wants the talks to continue '. The change of wrong practices might refer to the export ban on Huawei. However, China has not elaborated on what 'wrong practices' means. The message, that China does not want a trade war but is ready to fight to the end if necessary was also repeated many times during the week.

In a letter to Trump, more than 600 companies urged him to resolve the trade dispute. Intel and Google have also been lobbying for exemptions from the export ban on Huawei. An indicator from Morgan Stanley measuring US business conditions collapsed in June to the lowest level since the financial crisis 10 years ago. This follows other recent data, which point to a business slowdown and challenges the view of Trump's economic adviser Larry Kudlow, who, on Tuesday, argued that US growth will continue at 3% for the rest of the year, even without a trade deal. Chinese data remain weak but there are no signs of a hard landing.

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