Money Talk on RTHK Radio 3 - Monday 7 January 2019

A market friendly speech by Fed Chairman Jerome Powell sent US stocks surging on Friday. Speaking on a panel with former Fed chairs Janet Yellen and Ben Bernanke, Mr. Powell said central-bank policy is flexible and officials are “listening carefully” to the financial markets. More importantly for investors who have been worried about tightening liquidity, the central bank chairman said he would consider changes to the Fed’s gradual run off of its balance sheet if it had an adverse effect. As well as telling the conference that the Fed is no longer set on raising interest rates and is "prepared to adjust policy quickly and flexibly" to support the economy, he said that he would not resign from his post if President Trump asked him to. The comments came as a relief to those investors who are fearing slowing global economic growth. US stocks surged to their highs of the day after the speech and closed over 3% firmer.

Adding to the newfound optimism was a stellar jobs report. Total non-farm payroll employment increased by a much bigger than expected 312,000 in December, the highest in ten months. The unemployment rate rose from 3.7% to 3.9% as a result of more people coming off the sidelines to look for jobs, increasing the labour participation rate to above 63% for the first time since March 2014. Job gains occurred largely in health care, hospitality and leisure, construction, manufacturing, and retail, the US Bureau of Labour Statistics said. Average hourly earnings rose 3.2% from a year earlier, the biggest jump in wages since 2009.

Further good news came from the mainland, where the People’s Bank of China announced a two-stage cut in the Reserve Requirement Ratio for major commercial banks, the fifth decrease in a year. The PBOC will cut the RRR by a total of 1% in two stages, by 0.5 percentage points each on January 15 and January 25, releasing about 1.5 trillion yuan of liquidity, ahead of the lunar new year holiday. Earlier on Friday, Premier Li Keqiang visited the mainland’s biggest banks and urged them to take full advantage of broad & targeted RRR cuts to support private & small firms’ financing. He also said China will strengthen counter-cyclical adjustments and implement further tax cuts. Interest rates had been already falling on the mainland before this latest RRR cut and will offset repayments of 1.3 trillion yuan made to banks by the PBOC through its medium-term lending facility.

Countering some of the recent gloomy economic data from the mainland, the Caixin China services PMI rose to a six-month high of 53.9 in December from 53.8 a month earlier. This contrasted with the industrial sector, where data earlier last week showed the Caixin manufacturing PMI contracted for the first time since May 2017.

However, the latest data from Hong Kong painted a picture of the SAR struggling with the fallout from the US-China trade war. The Nikkei Hong Kong Purchasing Manager's Index, rose to 48.0 in December, the ninth consecutive month that the reading has been below the neutral level of 50, signalling ongoing deterioration in business conditions. Both output and new orders declined again, dragged lower by a fall in Chinese orders. The data also confirmed there was no new job creation in 2018 and suggests that the Hong Kong economy is likely to slow further early in 2019. Data last week showed Hong Kong retails sales growing at just 1.4% year-on-year in November, the slowest pace in 17 months.

Fears over the impact of the trade war and possible changes in Hong Kong’s special custom status with the US have damaged business confidence in recent months. Speaking on RTHK’s “Letter to Hong Kong”, DAB lawmaker Holden Chow tried to play down such concerns, saying officials from the US State Department have told him that there's no plan to change Hong Kong's customs status. Mr. Chow said he met US businessmen during his recent visit to Washington DC and "they categorically denied any loss of confidence in Hong Kong, and they even went on to say that their investment in Hong Kong will remain unchanged.” Despite that, US officials raised concerns over the disqualifications of candidates in Legco elections, the ban on the pro-independence National Party, as well as the SAR government's decision not to renew Financial Times journalist Victor Mallet's work visa.

There was some optimism that progress was being made in resolving the US-China trade war after China’s Commerce Ministry confirmed that the two countries will hold vice-ministerial level negotiations on trade on January 7-8, in Beijing. However, the US delegation is relatively low-ranking and Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and top trade adviser Peter Navarro will not be in attendance. President Trump said on Friday “we are doing very well in our negotiation with China.” The US President will meet with China’s Vice-President Wang Qishan on the sidelines of the annual World Economic Forum in Davos, Switzerland which runs from January 22 to 25. Last year, the two countries slapped tariffs on hundreds of billions of dollars’ worth of each other’s goods but at the G20 summit in Argentina last month, they agreed to hold off on imposing any additional sanctions for 90 days.

On Monday's Money Talk, Alex Wong, Director of Asset Management at Ample Capital reviews the latest business, finance and economic news from around the world. The view from the mainland is provided by Ben Cavender, Principal at China Market Research Group in Shanghai. We also discuss the sharing economy in Hong Kong with Chris Lehane, Head of Global Policy at Airbnb.