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Friday, September 13: Five Things You Need to Know to Start Your Day

By Bloomberg 13 September 2019
Outgoing European Central Bank president, Mario Draghi.

The U.S. is considering an interim China trade deal, the ECB revives QE in the face of major dissent and Australia’s economy is in the doldrums. Here are some of the things people in markets are talking about today. 

Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs  in exchange for Chinese commitments on intellectual property and agricultural purchases, sources say. The proposal would be an interim deal rather than a final resolution, aimed at avoiding tariffs due to hit China in December that would affect consumer products in the U.S., ranging from smartphones to toys and laptop computers. The plan reflects White House concerns over the economic impact of tariffs going into an election year, with polls showing the trade war is not popular with many voters. Meanwhile, Goldman Sachs says the value of the U.S. dollar is affected more by the trade war than it is by the Federal Reserve’s policy stance. Which is not how Trump sees it.

Draghi Delivers

The European Central Bank’s Mario Draghi cut interest rates further below zero and restarted quantitative easing, despite resistance from ECB governors representing core euro-area countries. The ECB reduced the deposit rate to minus 0.5% from minus 0.4%, and said it’ll buy debt from Nov. 1 at a pace of 20 billion euros ($22 billion) a month for as long as necessary to hit its inflation goal. In an unprecedented revolt, central bank governors from Germany, France and the Netherlands opposed immediate resumption of bond purchases, sources say. Other dissenters included, but weren’t limited to, their colleagues from Austria and Estonia. Draghi’s decision to press ahead risks leaving his successor Christine Lagarde with a headache when she starts in November.

HKEX’s China Ties

Hong Kong Exchanges & Clearing’s drama-free ties to Beijing used to be a bonus. But with questions mounting over the Chinese government’s role in Hong Kong affairs, those ties now represent a threat to HKEX’s $36.6 billion bid for the London Stock Exchange Group. The Hong Kong government, which owns 6% of HKEX, appoints six of the company’s 13 board members, and the city’s chief executive — a person appointed by Beijing — picks the company’s chairman. So the exchange operator comes under a level of political oversight unusual among other developed market bourses. “The last thing LSE wants to consider is foreign ownership, particularly a Chinese player to control it,” said Cecelia Zhong, a former HKEX executive.

Market Open

Asian equity futures are higher after optimism about the outlook for a U.S.-China trade agreement and the ECB’s stimulus announcement helped U.S. stocks eke out gains. The S&P 500 Index closed just 0.5% below its all-time high, while the euro gained and sovereign bonds were mixed. Any steps by China and the U.S. to ease tensions ahead of face-to-face talks in Washington in the coming weeks would support sentiment as investors await monetary decisions from more of the world’s major central banks, including the Fed.

Abnormal Times

Australia’s biggest economic stimulus since 2009 isn’t working. You might expect the economy to be flying after recent back-to-back interest-rate cuts and tax rebates delivering up to A$1,080 ($744) to households across the country. But these aren’t normal times. Australian firms and households are deep in the doldrums, with little sign that recent Reserve Bank and government efforts will change that. Earlier data showed that retail sales actually went backwards in July. With the RBA’s cash rate now at a record-low 1%, economists are betting the central bank will be forced to deploy unconventional monetary policies next year unless the government significantly lifts fiscal stimulus.

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