Money Talk on RTHK Radio 3 - Tuesday 29 January 2019

Trade talks, the Fed, Brexit and earnings from global tech giants are all potential market moving events this week. Later today, a high-level delegation from Beijing will arrive in Washington for trade talks. That will pave the way for discussions between China’s top trade negotiator, Vice Premier Liu He, who will meet on Wednesday with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. Last week, US Commerce Secretary Wilbur Ross said the US and China remain "miles and miles" from a resolution to their damaging trade spat. Also overshadowing the talks is the ongoing dispute between Western governments, including the US, and Chinese telecoms giant, Huawei. This week, the US Justice Department faces a deadline for formally requesting the extradition of Huawei’s Chief Financial Officer, Meng Wanzhou, who is being detained in Canada.

After the closing bell on Tuesday, Apple reports fourth quarter earnings. The iPhone maker had already warned earlier this month that revenue for the holiday quarter would be about 10% weaker than previously expected. But it could get worse. On Friday, Boston-based research group Strategy Analytics, said that iPhone shipments had dropped by 22% in China in the last quarter. On Monday morning, Apple supplier, Japan Display, disclosed that the current financial year was “harsh” with demand dropping more than expected due to China’s economic slowdown and the US-China trade war. Other tech names to report this week include Amazon, Microsoft, Facebook, Alibaba and Samsung.

The Fed’s interest rate setting committee meets on Tuesday and Wednesday and the Federal Open Market Committee is expected to leave interest rates unchanged after raising them for the fourth time in 2018, last month. It has recently signalled more patience before raising interest rates again and two further rate rises are expected later in 2019. The Wall Street Journal reported on Friday that the US central bank was considering exiting its balance sheet reduction programme sooner than anticipated and will maintain a larger portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago.

Also on the easing track is China’s central bank. Last week, the PBOC announced a new form of Quantitative Easing, known as the Central Bank Bills Swap, as an additional tool to fight the slowdown in the mainland economy. To inject liquidity into the system, the Chinese central bank will allow commercial banks to issue perpetual bonds which can then be used as collateral to access PBOC liquidity operations.

The prospect of liquidity boosting measures from the Fed and the PBOC and optimism over the US-China trade talks gave Asian stocks a filip in Monday morning trading. In Hong Kong, the Hang Seng index advanced to new four-month highs rising a third of a percent by lunchtime. On the mainland, the Shanghai Composite index rose by a similar amount and the yuan surged almost 400 pips to break through 6.73 per USD mark. A-shares were unfazed by data showing China's industrial profits slowed sharply in 2018, up 10.3% year-on-year, compared to growth of 21% in 2017. In December, industrial profits fell 1.9% y/y, versus a drop of 1.8% the previous month.

On Tuesday’s Money Talk, Connie Bolland, Founder & Chief Economist of Economic Research Analysis and Hao Hong, Head of Research and Chief Strategist at Bocom International, provide their analysis of the latest business and finance news. We also have our regular Tuesday view from Japan. This week, Marcel Thieliant, Senior Japan Economist from Capital Economics updates us.