Global views and trends

Webcast: Focus on US and China – their relations and economies

14/03/2019 - Chi Lo and Steven Friedman

The economic relationship between China and the US will be central to the global economy for years to come.

So what do we expect to see? Here are the highlights from the 28 February webinar.


The outlook on Sino-US trade talks over tariffs has brightened recently, with the risk of escalation receding.

That said, the focus of negotiations looks set to mutate from the macro level to the micro, with the US playing hardball on the specific issue of Chinese investment in US tech companies, possibly imposing more stringent controls.

For its part, China appears to be toning down its ‘Made in China 2025’ rhetoric while remaining steadfast in its determination to move up the tech value chain.


China: targeted easing should bear fruit

China is refocusing and to some extent boosting its easing measures to address growth concerns. Local governments will get earlier approval for bond issuance – and look likely to be allowed to issue more.

Further guidance to banks to channel more credit to the private sector, further tax cuts, particularly in VAT, and lower reserve requirement ratios should all help to plant the seeds for growth recovery by Q2 2019.


US: Recession? Not just yet

For 2019, the outlook for growth in the US is a mixed bag, with consumption remaining solid (although momentum is flagging somewhat), and government spending probably at a peak. Weaker trade and residential investment could drag on growth. That said, while the slowdown bears watching, business and consumer activity levels remain healthy. Will there be recession? So far, productivity gains have lifted profit margins by keeping unit labour costs down, but unless those gains go further, margins could falter, leading to a scale-back of hiring and capex. Banks are also tightening lending standards on corporate loans.


Fed framework adjustment and supply-side improvement the main focuses

Struggling to hit its inflation target – and with populism and recession making it challenging to resort to conventional quantitative easing, the Fed is considering changing its strategy to average inflation targeting (AIT). This could also be supplemented with a revised policy toolkit so as to better able to manage the next recession.

The Fed is also searching for ways to support supply-side improvements in the economy and sees some encouraging evidence in productivity and labour data, as well as the likelihood that President Trump will fill the two current Fed board vacancies with supply-side sympathisers.

On the same subject:

China’s opening-up of its bond market – the third largest in the world – to foreign investors marks a turning point. It should allow investors to access a broad range of new instruments, possibly index products and bond ETFs, and boost their currently modest presence in this market.

TIR cover

In a world striving for greater sustainability, investment in coal – be it mining or power generation – should be much more selective, hence our new coal investment policy. Also in this issue: how to navigate markets as they swing between the impact of news on the fundamentals and adjustments in central bank liquidity; what to make of the trends in US inflation; and our assessment of the relations and economies of China and the US.


The signs are that restarted Sino-US trade talks may follow a more constructive path than they did last year. Both sides by now have a clearer idea of what’s at stake – economically and politically – if that doesn’t happen.

Divestment from coal: our new policy

Reducing emissions from coal is the single most effective way of moving towards an energy system consistent with the Paris Agreement. It is for this reason we publish today a new coal policy for our portfolios.

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