US and China to have a phone call, Wall Street hits new highs

Summary:

• Leaders from the US and China are expected to hold a phone call next week as they seek to find a solution to the ongoing trade dispute
• A trade truce reached between the US and China rules out the need for more stimulus in the world’s second largest economy, a PBoC adviser says
• Wall Street hits the new highs on the back of upbeat sentiment in the aftermath of the G20 summit

Trade war thread continues

US and China officials are expected to hold a phone call as soon as the following week as they are trying to find a solution to the ongoing trade spat, according to Bloomberg citing information from Donald Trump’s chief economic adviser Larry Kudlow. He added “they (leaders from both sides) will be on the phone this coming week. And they will be scheduling face-to-face meetings. Lots of communications.” This information cannot be a market mover itself as it was expected following a trade truce reached by the two sides during the G20 summit in Japan last weekend. However, we were also other positive reports overnight. Namely, China is reportedly considering buying some US agricultural products, including corn, soybeans and pork as a gesture of goodwill amid a new round of negotiations agreed to several days ago, as Bloomberg reports. Nevertheless, total volumes of these products bought by China will depend on the progress of trade talks. Given the fact that China is taking on African swine fever purchases of pork could be especially important for the country, and if these substantial purchases occur, it could ease some price pressure in the world’s second largest economy. 

China won’t need further stimulus, Wall Street hits new highs

Last but not least, the ceasefire between the United States and China seems to be convincing in the eyes of a PBoC adviser Ma Jun. According to him, the Chinese economy will probably be able to maintain economic growth exceeding 6% and the jobless rate below 5.5% without further massive stimulus measures. Let us recall that the authorities in Beijing rolled out meaningful fiscal measures earlier this year, including tax cuts, tax breaks as well as increased spending on infrastructure. On the face of it, these comments could be not supportive of equity markets around the globe, however, one needs to take into account a fiscal position in the Chinese economy. The more stimulus measures are introduced, the more burden on debt. Therefore, one needs to find a balance between debt sustainability and pro-growth fiscal policy. Meanwhile, investors on Wall Street continued their rally on Wednesday with the SP500 hitting 3000 points for the first time ever. The main US index closed 0.8% higher and finished the day only 5 points below the 3000 mark. Upbeat sentiment was also seen elsewhere with the NASDAQ adding 0.75% and the Dow Jones rising 0.7%. Keep in mind that further trade developments between the US and China could play a crucial role here.

The SP500 hit its new all-time high on Wednesday on the back of splendid sentiment following the G20 summit. Source: xStation5

In the other news:

• Shinzo Abe signalled that after a sales tax increase (to 10% from 8%) in October there would be no such a need over the next decade

• Australian retail sales rose 0.1% MoM in May, falling short of the median estimate of a 0.2% MoM rise