US-China trade tensions ease, but markets could open weaker on Syria missile strikes

Posted April 15, 2018 13:08:44

Photo: Business as usual as trade tensions between the US and China ease. (Reuters: Stringer)

Wall Street closed before the missiles flared off towards Syria, but there was a strong enough sniff of an imminent strike to inspire a modest wave of selling.

The 0.5 per cent dip in the S&P500 could not be entirely sheeted home to mounting global tensions, the banks did a bit of damage too.

Wells Fargo fell the hardest — down more than 3 per cent — after being told it had to pay a $1US billion ($1.3b) fine to tidy up some outstanding "regulatory" issues such as selling dodgy home loans and insurance products. Sound familiar?

While real military hardware was falling, the good news was the appearance of some sort of detente in the potential US-China trade war.

President Xi Jinping's speech to the Boao Forum promising China will lower some tariffs, ease access for foreign investors and strengthen protections for intellectual property received a White House tweet of approval.

As if on cue, China's trade figures on Friday afternoon showed its surplus with the US narrowed $2.3 billion from last year to $US15.4 billion in March.

It might be only a marginal improvement, but as Lao Tzu may have said, "the narrowing of every $300 billion deficit starts with a step of a couple of billion".

If nothing else, it alleviates bilateral tensions a tad.

The new sense of, if not bonhomie, then at least cooperation was given another kick along when the Trump administration did not pick up the option of officially naming China as a currency manipulator.

Photo: The Trump administration has refrained from declaring China a currency manipulator in the latest US Treasury report on global currencies. (Reuters: Thomas White)

While the US Treasury's semi-annual currency report criticised China for the "non-market direction" of its economy, it pulled up short of further action.

Escalating China to the status of a currency manipulator may have looked odd anyway given the yuan hardly moved against the US dollar on a trade-weighted basis last year.

Over the week, most markets were back bidding up a bit of risk; US equities rose 2 per cent, the ASX was up almost 1 per cent, while commodities prices were generally higher as were bond yields.

The targeted nature of the missile strikes meant futures markets on both the ASX and Wall Street did not appear overly alarmed, although after-market trading points to weaker openings to the week on both markets.

Unemployment to edge down

The ABS labour force figures are the main interest locally this week and the 18th consecutive month of jobs growth is expected.

The consensus call is for another 20,000 new jobs, which should see the unemployment rate drop a notch to 5.5 per cent if the number of people looking for work remains steady.

NAB's David de Garis says that looking at job ads and his bank's business survey, jobs growth may be a bit higher, but sooner or later things will falter.

"Whether by dint of a change in trend or through sample effects, the stretch of the growth elastic will break at some point," Mr de Garis said.

However, even if unemployment does edge down to 5.5 per cent, that is still unlikely to be low enough to arc up wages growth.

Mr de Garis says unemployment below 5 per cent will be needed to create the sort of labour shortages needed to put upward pressure on wages again.

Bank reporting season starts, royal commission resumes

Bank of Queensland is as usual the first out of the blocks in the banks' mini reporting season.

It is expected to deliver a cash half-year profit on Tuesday of around $190 million, 10 per cent up on the previous corresponding period.

The growth is expected to flow from more expensive home loans more than offsetting the combination of fewer mortgages being sold and slightly higher regulatory expenses incurred.

While interesting, bank watchers will probably be more tuned into the resumption of testimony at the Hayne Royal Commission.

The latest instalment will look a poor practices in financial planning.

Another forensic dissection of banking dodginess from counsel assisting Rowena Orr should make for compelling viewing — unless of course you are an executive of a big bank in charge of financial planning, in which case you'd probably prefer to stay in bed, hiding under the doona.

First quarter production reports from BHP, Rio Tinto and Santos are due and Woodside Petroleum holds its AGM on Thursday.

Chinese economy remains solid

Globally it is a fairly quiet week ahead, with much of the focus on the US reporting season.

So far so good, although the first few banks to drop results have disappointed.

China publishes its first quarter GDP numbers, as well as the usual bundle of monthly figures.

Chinese data in the first three months has been pretty solid, so the consensus call is GDP growth should remain at an annualised pace of around 6.8 per cent.

Retail sales and industrial production are also expected to be higher, but infrastructure and construction spending slower.

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