Daily Commentary BY THE CURVE TEAM –

Trade Truce

21st of May, 2018

The big news over the weekend was the release of an in principle agreement between the US and China on trade between the two countries. While it will come as a relief to many, the details are still a little scant on exactly what the agreement will entail.

China and the US have come to an agreement to avoid a trade war according to an in principle agreement which was released over the weekend. One of the key highlights from the statement said:

“There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States. Both sides agreed on meaningful increases in United States agriculture and energy exports. The United States will send a team to China to work out the details.”

This is an obvious step in the right direction but like in many cases, the key will be what the detail looks like when it is finally agreed on. Hopefully it can be finalised quickly to avoid any doubt over the process given time to build.

The market reaction has been as strong as might have been expected. Equity futures have opened stronger this morning but forex markets aren’t nearly as excited by the announcement. Time will tell as the week rolls on.

It’s a quiet week on the data front locally with the first of the partial indicators of GDP due out ahead of the final release next Wednesday.

David Flanagan

Director - Interest Rate Markets