The Brexit saga moved forward, if uncertainly; China took steps to ease its economy as trade talks continued.
“Tailwinds have lost their gust, interest rates are closer to normal levels, and inflation is tame. The approach we need is one of prudence, patience, and good judgment."
Brexit: To fight another day
With UK Prime Minister May’s Brexit plan rejected in Parliament by an historic margin, the question remains: what plan could win sufficient support to pass, and how will the UK get there?
May’s challenge was made only slightly easier after her government survived yet another no-confidence vote after the Brexit proposal’s defeat. That leaves the door open to a possible “Plan B” proposal; another round of discussions with a change-resistant European Union; an extension of the March 29 deadline for Brexit to take effect; or the long-dreaded “hard” Brexit, in which the UK leaves the EU without prior arrangements.
For more insight into the choices and consequences ahead, read Western Asset’s Brexit: Deal or No Deal? Or Something in Between?
China: Break in the clouds?
Thursday January 17th saw a report surface in the press, quickly denied by U.S. officials, that Treasury Secretary Steven Mnuchin was considering offering China a temporary rollback on tariffs in order to calm financial markets. The report, carried initially by the Wall Street Journal, comes against the backdrop of rumored differences of opinion between Secretary Mnuchin and U.S. Trade Representative Robert Lighthizer, known as a hard-liner on tariffs and trade.
Equity markets in Asia surged on the news and pulled back only slightly after the official denial; Hong Kong’s Hang Seng Index rose as much as 1.4% intraday before finishing up 1.25% to 27,090.81 on Friday1; the Shanghai-Shenzhen CSI 300 Index closed up by 1.82% to 3168.17; Japan’s Nikkei 225 rose 1.29% to 20,666.07.
Positive news on China’s trade and growth would be timely for the entire East Asia region. Singapore’s exports saw the biggest monthly decline in more than two years in December as U.S. China tensions, combined with a slowing U.S. tech sector, took a toll. Indonesia’s central bank held its benchmark rate at 6% in its most recent announcement, in the expectation that China would respond to its own slowdown by easing its stance toward leverage; the People’s Bank of China’s recent decision to decrease its required deposit reserve ratio by 0.5 percentage points to 13.50%, effective January 25 and inject 570 billion yuan ($84 bn) on January 15 into the interbank market are recent examples of China’s proactive approach to supporting growth.
1 Please note that due to time zone differences, the trading days Friday in East Asia end at approximately 1:30 AM (Japan), 3:15 AM (Hong Kong) and 2:05 AM (Shanghai/Shenzhen Index) on Friday, Eastern U.S. time. Source: Bloomberg
The NIKKEI 225 is a price-weighted index composed of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange.
The Hang Seng Index is a market capitalization-weighted index of 40 of the largest companies that trade on the Hong Kong Exchange.
The Shanghai Shenzhen 300 Index is a cap-weighted index that tracks the daily price performance of the 300 most representative class A share stocks listed on the Shanghai or Shenzhen Stock Exchanges.