Will trade data help or hinder China’s negotiating position?

Will trade data help or hinder China’s negotiating position?

US president Donald Trump and his Chinese counterpart Xi Jinping are due to meet soon for talks amid a long-running trade war between their nations. Trade data published this week will determine the strength of China’s hand heading into that meeting.

Better numbers on Chinese trade — October figures are due for release on Friday — would help bolster Mr Xi’s position. Declines in both imports and exports sharpened in September, and exports have now spent more than half of 2019 in contraction.

Beijing is keenly aware of the impact of US tariffs on China’s external trade: shipments to the US fell more than 10 per cent year-on-year in September, helping drag total exports down more than 3 per cent.

In a show of support, Mr Xi is reportedly scheduled to give a keynote speech on Tuesday at a big import expo in Shanghai — a platform he used last year to promise China would boost purchases of foreign goods.

That would please US negotiators keen for Beijing to commit to large purchases of US agricultural goods. Chinese officials have so far declined the chance to buy large quantities of spoilable goods their country may not really need.

China’s severe pork shortage, caused by an African swine fever epidemic, could provide unexpected common ground: more Chinese imports of US hogs would provide relief to American farmers and consumers in the People’s Republic. And those are bread-and-butter benefits that both sides of the negotiating table can appreciate. Hudson Lockett

Will the Bank of England hint at rate cuts?

After the UK avoided a no-deal Brexit at the end of October, almost no one expects the Bank of England to cut interest rates from 0.75 per cent this week. The vast majority of analysts expect the BoE to stay on hold on Thursday with the prospects for the economy still clouded with uncertainty ahead of an unpredictable December election.

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But peering through the fog, many are expecting a dovish shift at the BoE, which could make a cut early next year more likely whatever happens with Brexit.

Growth has been weak, with output unexpectedly shrinking by 0.1 per cent in August. Meanwhile, the global backdrop has also deteriorated since the BoE’s last quarterly inflation report was released that month.

“The economy may be on a path that would eventually prompt the MPC [Monetary Policy Committee] to cut rates, but the chance of a Brexit deal in January will keep the toolbox in the closet for now,” said Andrew Wishart of Capital Economics.

Traders are pricing in a roughly one-in-three chance of a cut to 0.5 per cent by March. Those odds were as high as 75 per cent in early August but plummeted as Boris Johnson’s Brexit deal caused investors to scrap bets on a no-deal outcome.

Any hint that the BoE is warming to rate cuts with or without Brexit clarity could see the pound give up some of its recent rally and boost UK government bonds. HSBC economist Elizabeth Martins said there was a chance that at least one member of the BoE’s rate-setting committee would vote to reduce rates this week — a move that would fuel further bets on a January cut. Tommy Stubbington

Are Argentina’s dollar bonds headed lower from here?

For months, Argentina’s bonds have hovered around a level in line with historic recovery values in the event of a harsh debt restructuring.

The country’s dollar bonds suffered a massive sell-off following a surprise primary election result in August, which saw incumbent Mauricio Macri’s re-election prospects all but disappear. One bond maturing in 2028 saw its price drop 40 per cent over the course of just a few days. It now sits at about 39 cents on the dollar.

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The once-celebrated century bond maturing in 2117 languished as well, with its price plunging from 75 cents on the dollar just before the primary election to roughly 40 cents, where it remains today.

Now with leftwing Alberto Fernández the confirmed president-elect, investors are split as to whether 40 cents on the dollar represents substantial value for the country’s debt or if the bonds are set to test further lows in the not too distant future.

The argument that Argentina’s bond prices are far too deflated hinges on a more optimistic outlook as to how Mr Fernández will approach the upcoming debt restructuring with bondholders. In August, Mr Macri announced the country needed to restructure $101bn of debt.

The president-elect has previously endorsed a Uruguay-style approach, in which bondholders give the government more time to pay back its debts without a so-called haircut — where investors have losses forced on them. Sceptics warn that such a deal may not offer enough cash flow relief for Argentina, given its massive debt pile. Colby Smith



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