Allan von Mehren
Danske Bank A/S
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US and China aim for trade deal in late May
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March data better than expected but downside risk to April data
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African swine fever crisis could give significant boost to inflation
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Xi addresses concerns over Belt and Road Initiative at the Belt and Road Forum
Aiming for a trade deal in late May
US President Donald Trump said on Thursday that Chinese President Xi Jinping will come to the White House soon. A high-level US delegation is set to go to Beijing on Tuesday and the following week Chinese top negotiators are set to go to Washington with the goal of closing a deal and announcing a signing summit between Trump and Xi, see Bloomberg , 24 April.
Comment. Trump's message suggest we are moving closer to a deal. We expect it to become a reality at a Trump-Xi summit in late May or early June.
More recovery signals but risk of disappointments in April data
Another batch of positive data for March was released just before Easter. Industrial production, retail sales, property prices and home sales all improved (see charts). Q1 GDP beat expectations with an increase of 6.4% y/y (consensus 6.3% y/y) and several banks followed up by revising up growth forecasts for 2019 to around 6.4% from 6.2-6.3%.
Comment. It is encouraging to see more signs that the worst is behind us in the Chinese economy. However, we should brace ourselves for some slip back in April as the March data are likely somewhat distorted by the Chinese New Year. The rise in industrial production of 8.5%, for example, seems too good to be true. Next week the April PMI manufacturing will give more clues. We see downside risk to the Caixin PMI manufacturing, which has risen very fast in recent months. However, we still believe that China has started a moderate recovery driven by easing trade tensions and economic stimulus. We may not see further reductions in the Reserve Requirement Ratio but we expect targeted lending measures to be stepped up to increase credit availability for small and medium-sized private companies.
African swine fever crisis intensifies
The African swine fever in China is starting to have a bigger effect on pork output pushing up prices. According to the Ministry of Agriculture and Rural Affairs the impact on China's pig industry has been 'very serious' with stocks shrinking and prices expected to rise to an all-time high later in 2019, see SCMP 23 April. The number of mother pigs declined 21% in March from a year earlier and in the first week of April pork prices increased 36% from a year earlier (up from a rise of 2.1% y/y in the first week of March).
China had 375 million pigs and piglets at the end of March, a drop of 53 million from 428 million in December. Some estimates have suggested China could lose up to 200 million pigs during the epidemic, close to three times the pig population of the US. So far 129 cases of African swine fever have been reported but the fear is that the number is much higher due to underreporting at big pig farms.
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