After 18 months of trade warring, the U.S. and China have agreed to try to agree to a truce that might lead to a longer-term agreement. The partial agreement will see the U.S. suspend its next tariff hike on Chinese imports after two days of trade talks in Washington.
Main points of the agreement include:
- China pledging to increase purchases of U.S. farm goods;
- Increased transparency in foreign exchange markets (currency manipulation);
- Protection of intellectual property; and
- A dispute settlement mechanism.
The package will calm markets and reduce fears of looming trade-driven recessions in the U.S. and global economies, even if Trump said the two sides had yet to commit a deal to paper.
Earlier in the week US Federal Reserve Chairman Jerome Powell said that the central bank will likely begin to expand the Fed's balance sheet in coming months in order to alleviate strains in money markets that emerged recently.
There was a surprise breakout of optimism around Brexit negotiations after the prime ministers of the UK and Ireland reported that they could envision “a pathway to a possible deal.” This coupled with the EU agreeing to "intensify" Brexit talks with the UK over the next few days saw equity markets rally on the fresh signs of progress. Under UK law, Prime Minister Johnson is required to seek a Brexit extension by 19 October if an agreement is not reached by the end of the European Union summit on 18 October.
Geopolitical tensions continued to escalate in the Middle East as an Iranian tanker was struck by missiles of possible Saudi origin, leading to a spike in oil prices and a promise of more U.S. troops in Saudi Arabia. Turkey continued to push into Kurdish territory in Syria, drawing global criticism — including from the Trump administration, which gave Turkey the green light in the first place.
Market Moves of the Week
The JSE snapped a three-week losing streak on Friday, buoyed by news that China-US negotiations were progressing well. The rand also enjoyed strong gains on Friday, trading more than 2% firmer, ending the week at R14.77/$ (a gain of 2.85% over the week).
Three Gupta brothers now fall foul of the Global Magnitsky Act, which honours a Russian lawyer who died in prison while fighting corruption. Atul, Ajay and Rajesh Gupta, and Salim Essa have had sanctions levied against them by the U.S. accusing them of using their close proximity to former President Zuma to raid the state purse.
The all share ended the week up 2%, its biggest rise since early June. The index is now up 4.4% in 2019. Resource (+5.4%) and Financial (+3.35%) shares were strongly up over the week, while on the downside, gold producers were hit by the improvement in global risk demand.
Chart of the Week
The U.S. negotiating position isn’t as strong as many believe as there are benefits to Chinese growth for everyone. As this chart from BCA Research Inc. shows, China accounted for all of the world’s growth in the year after the financial crisis; since then it has contributed about a quarter of global growth each year.
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