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BOE Hike Warnings Go Unheeded as Rate Cuts Seen as More Likely

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Comments of the Day

12 June 2019

 

 

Video commentary for June 11th 2019

 

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics covered include: China moves to ease lending standards, supports the stock market and the currency, Wall Street pauses. gold, copper, lumber and corn steady, oil weak. Europe, India and ASEAN steady. Dollar steady but susceptible to additional weakness. 

Some of the topics covered include: China moves to ease lending standards, supports the stock market and the currency, Wall Street pauses. gold, copper, lumber and corn steady, oil weak. Europe, India and ASEAN steady. Dollar steady but susceptible to additional weakness. 

 

 

 

On Target June 11th 2019

Thanks to Martin Spring for this edition of his ever-interesting report. Here is a section on China’s tech ambitions:

The FT reports that the US ban on infotech trade with China could be a problem for Google as its Android system is “central to the smartphone market in China, which is bigger than Europe and the US combined, due to its use by Huawei and other [Chinese] phonemakers include Oppo and Xiaomi.”

Chinese president Xi Jinping has spoken openly about his plans for China to gain global dominance in future high technologies in just SIX years’ time. Their foundation will be China’s capacity to design and manufacture cutting-edge semiconductor chips. $150 billion is being poured into achieving that. However, so far subsidies and tax breaks have only lifted China’s self-reliance in low-value chips.

The Americans are clearly using the current “trade war” to hinder Xi’s ambitious plans by demanding that the Chinese cease their theft of intellectual property, and of using their negotiating power to force technology transfers as part of the price of allowing joint ventures to operate in their huge domestic market. 20 per cent of European companies doing business in China, for example, say they are compelled to hand over technology to Chinese partners.

It’s unlikely the Americans will succeed in getting the Chinese to play fair. Agreeing to trade-balancing deals would be one thing. Agreeing to stop their massive co-ordinated attack on the heights of leading-edge industries would be something else. It’s certain they’ll renege on any promises about that they have to give.

Ironically, cutting Chinese access to American components and technology, or merely threatening to do so, is the strongest incentive of all to stimulate Chinese development of high-tech sectors.

Investors have generally taken the view that the ugly contest between Trump and Xi will be resolved in a “deal” that the American president can claim to be a victory, but Xi can present as a fair agreement. That still seems to be the likely outcome.

As for the arms race… that still has much further to run. It will be a key part of the long-term strategic contest between the hegemon and its fast-growing global challenger.

 

Eoin Treacy's view

The challenge in competing with the West is less in developing hardware, which can be copied at will, but in developing the software to function across platforms, communicate between devices and provide both back and front-end support. It is no mistake that the majority of the companies which have attained mega-cap status are software driven and outsource manufacturing of their hardware. There is no doubt China is capable of creating its own software systems, but it is not an easy process and will take time even with an army of programmers.

 

 

China Sets Yuan Fixing Stronger Than Expected in Sign of Defense

This article by Tian Chen and Ran Li for Bloomberg may be of interest to subscribers. Here is a section:

"Forget about the psychological 7 level," said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd., adding that the fixing will stay stronger than 6.9 before the Group of 20 summit. "Today’s fixing sends a clear message that the authorities are still intent on keeping the yuan stable, and
have no desire to see it weaken further."

Trump Says He’ll Raise China Tariffs If Xi Won’t Meet at G-20 U.S. President Donald Trump and his Chinese counterpart Xi Jinping may meet at the G-20 summit in Osaka this month. Traders will be closely watching the gathering to gauge the outlook for trade negotiations and the yuan.

"We expect the Chinese authorities to continue defend 7 in the foreseeable future," said Becky Liu, head of China macro strategy at Standard Chartered PLC, adding that a negative outcome at the G-20 summit wouldn’t warrant a change in this stance. "The PBOC may step up the size and frequency of bill issuance should the yuan come under greater depreciation pressures."

 

Eoin Treacy's view

With upwards of a million people protesting on the streets of Hong Kong and the world paying attention to the trade war between the USA and China, the Chinese administration has a clear incentive to project an aura of stability and calm.

 

 

BOE Hike Warnings Go Unheeded as Rate Cuts Seen as More Likely

This article by David Goodman for Bloomberg may be of interest to subscribers. Here is a section

Bank of England policy makers and investors are taking contrasting views of the U.K. economy as official warnings of potential interest rate hikes clash with market predictions for a cut.

The market moves are partly based on a belief that the U.S. Federal Reserve is on course to reverse its recent hiking path, forcing central banks around the world to follow suit, but also reflect the drastically different Brexit outcome built into investors’ outlook.

While the BOE’s forecasts -- including its hawkish view of longer-term inflation -- are based on the assumption of a smooth Brexit process, investors have the luxury of being more nimble, and so have increasingly priced in the risk of a no-deal departure in October. That’s not without reason, since no deal is a policy advanced by a number of potential candidates to replace Theresa May as prime minister this summer. There are also nascent signs that BOE officials are ending their year of unanimity, with some edging closer to the market’s view.

 

Eoin Treacy's view

The UK is just about the only developed market where inflation measures are above the comfort level of the central bank and yet the Bank of England is not in a position to raise rates. CPI has been above 2% since early 2017 and while the rate moderated from 3% to 2% last year it has stabilised this year. Brexit represents a key uncertainty because a hard exit would deliver a short sharp shock which would justify the low interest rate environment, whereas if the UK ultimately decides to remain in the EU, the Pound is undervalued and the Bank of England be more inclined to raise rates.

 

 

Eoin's personal portfolio - cryptocurrency long opened

 

 

Eoin Treacy's view

Details of this trade are posted in the Subscriber's Area. 

 

 

2019: The 50th year of The Chart Seminar

 

 

Eoin Treacy's view

There will be a memorial concert for David at the Royal Festival Hall on October 5th. It looks like we will have a room at the Royal Festival Hall for an hour before the concert for a memorial. Wine and canapes will be served. Afterward we will retire to the Benefactor's Lounge where Tim Walker, Chairman of the LPO will dedicate the concert in David's memory. The concert will be from 7:30 to 10pm. If anyone would like to attend the concert in addition to the memorial there will be a box to tick on the booking form which I will provide as soon as I have it.   

Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th to coincide with the memorial on the Saturday.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected].  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

 

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