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December 11: Five Things You Need to Know to Start Your Day

The Apple logo is illuminated at the company's store in Hong Kong, China.

China expects to be spared from the next tranche of U.S. tariffs, Australia’s Westpac is bracing itself for a stormy general meeting, and South Korea’s low birthrates may prompt the country’s central bank to foray into the realm of unconventional policy. Here are some of the things people in markets are talking about today.

Duty Delay

The idea that the U.S. will delay tariff increases on China, due to kick in on Sunday, seems to be the prevailing consensus. Yesterday, Agriculture Secretary Sonny Perdue said the U.S. is unlikely to impose the extra tariffs on $160 billion of Chinese goods. Chinese officials are expecting a similar outcome, anticipating that President Donald Trump will delay the threatened increase, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition. The two sides, staying in almost daily contact, have also come closer to an agreement on scaling back the tariffs already in place. But rather than removing or rolling back existing levies, the focus has been on reducing the rate of the tariffs already in effect. So far, the U.S. has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a 20-month trade war.

Markets Mild

Asian stocks are poised for another muted open as investors debate whether China and the Trump administration will reach a meaningful trade deal ahead of the tariff deadline. Treasuries slipped ahead of Wednesday’s Federal Reserve meeting, while futures in Japan and Australia were flat, and ticked higher in Hong Kong. The S&P 500 Index fell in below-average volumes as investors digested mixed signals on the likelihood of fresh tariffs. The dollar was mixed against G-10 currencies, while crude oil fluctuated. Elsewhere, the pound rose ahead of a key political poll and just two days before a general election dominated by Brexit. The euro advanced while European bonds drifted lower after French and German economic data beat expectations.

Biggest Breach

Westpac Banking Corp. is bracing itself for a stormy annual general meeting Thursday as shareholders prepare to rebuke the lender over accusations it committed the biggest breach of money laundering laws in Australian history. Protest votes against both its pay report and the re-election of some directors loom following ballot recommendations from influential proxy advisers and the local retail shareholders’ association. Yet the bank may have warded off the threat of a motion to oust the entire board after none of the major advisory or industry groups said they would back such a radical move. Some powerful industry pension funds have also thrown their support behind the board, arguing there has been enough bloodletting. Westpac said Monday it intends to admit a large number of the allegations and is “determined to resolve” the matter with the Australian Transaction Reports and Analysis Centre.

Oh Baby

Newborns — or a lack thereof — could prompt the Bank of Korea to make baby steps into the realm of unconventional stimulus. That’s the view of S&P’s Asia-Pacific chief economist Shaun Roache, who points out that the demographic challenges of Korea’s rapidly ageing society are giving the BOK less room for manoeuvre with interest rates. South Korea is on track to break its own world record for the fewest babies expected per woman, according to recent data. If the trend continues, the proportion of elderly citizens in Korea will increase by more than any other country by 2050, according to the United Nations. This demographic challenge creates a reluctance to spend and a tendency to save more for retirement, especially with a pension system in Korea that is widely viewed as inadequate. This in turn pushes down the so-called neutral interest rate at which inflation is stable with full employment, Roache said in an interview in Seoul.

Bumpy Ride

Australia’s dollar is set for a turbulent 2020 as uncertainty around global growth, trade and interest rates divide analysts’ forecasts for the currency. The Aussie will drop about 5% to 65 U.S. cents by December, wrenched lower by cooling economic growth and a dovish central bank, acccording to Rabobank and Nomura Holdings Inc. Yet others disagree: the currency may jump 14% to 78 U.S. cents in the same period on easing U.S.-China trade tensions, according to Monex Europe Ltd. “A worsening in trade tensions is the biggest risk for the Aussie dollar,” said Ranko Berich, head of market analysis at Monex in London. There are signs the world’s two biggest economies are likely to strike a compromise, and the Aussie will “benefit from a knee jerk risk-on reaction to the finalization of a phase one trade deal,” he said. Australia’s dollar has slumped about 3% this year as the U.S.-China trade war has pummeled risk assets, and taken an extra-large toll of the Aussie due to its role as a proxy for China’s economy. The currency slid to a 10-year low of 66.77 U.S. cents in August before stuttering along to trade at 68.29 cents late on Tuesday in Sydney.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.


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