Trade Talks With China, Japan Moving Slowly but Moving
For investors, next week could see important announcements with respect to trade deals with Japan and China. President Donald Trump has indicated that a deal has been reached with the Japanese that will open up Japanese markets for expanded sales of US agricultural products.
In order to finalize the deal, however, the Japanese are seeking written assurances that their companies will not be hit by the President’s threatened 25% tariff on autos and auto parts coming into the US. The US has given verbal assurances, but it is not clear this will be enough for Prime Minister Abe to sell the deal at home. Stay tuned.
Staff level talks occurred this past week in Washington between trade negotiators from China and the US. In what may have been a negotiating ploy the Chinese team left the US a day early cancelling meeting with farmers in Nebraska and Montana. There is still a hope that the two sides can agree on a date in early October for the principals to meet in DC. Both the Japanese and Chinese talks are aimed at selling US agricultural products to help farmers in the key states the President must win next November. With Trump counting on strong farm country support in 2020, and potential very large sales to China, the Chinese are in a strong negotiating position.
Though the Federal Open Market Committee reduce the Federal Funds rate by 25 basis points, Chairman Jerome Powell was purposely ambiguous as to future rate actions. There are clearly divergent opinions among members of the FOMC, with two members sticking with their summer position of no cut, while one switched to a bigger cut.
Powell and others believe it is important to keep interest rates near the current level while unemployment is at record lows and consumer buying power remains strong, in case inflation rears its ugly head. With no major changes there is a chance there will be no more cuts this year. Indeed, the CME Fed futures market has backed off a prediction of another cut next month, though one cut of 25 bps is still expected in December. For more, see page 6.
Meanwhile, the House passed a stopgap funding bill, the Continuing Resolution (CR), that will keep the government running past the October 1 deadline until November 19. The CR has no hot button issues such as abortion or the border wall, and the Senate is expected to pass it next week. The White House has announced the President will sign the bill.
The Congress and the President this summer agreed to a spending blueprint for the next two years that allowed for increased spending for both defense and non-defense spending, but these increases are not contained in the CR. The Republicans are eager to get the additional funding for defense which is part of the President’s core message; and the Democrats need to get more spending for domestic programs to demonstrate the power of controlling the House. The Congress will hopefully pass the main spending bills prior to the next November 19 deadline.
Figure: Top Trump Tweets
