China sets preconditions to reach deal with the US

Summary:

  • China demands to lift all US tariffs in order to reach a deal with Washington
  • Beijing seems to be reluctant to increase purchases of US agricultural products unless restrictions on Huawei are lifted
  • Markets quiet as investors await the US jobs report

Deal or no deal

According to Chinese state media, the country wants the United States to remove all the tariffs placed on Chinese goods as a precondition to reach an agreement. Meanwhile, Donald Trump seems to be reluctant to do so yet before making a deal with China, this can make another round of negotiations tougher. On top of that, Beijing has said that any future purchases of US agricultural goods must be in line with the country’s real demand and any agreement hammered out between the two countries needs to be based on equality and mutual respect. In practice, it means that Beijing is not interested in buying US agricultural goods at a large scale, therefore it trims to some extent a field to reach a consensus. Moreover, Chinese state media suggested that China would not buy products from US farmers if the US flip-flopped again in future negotiations. Let us recall that yesterday we got information that China could increase purchases of US agricultural goods but volumes would depend on progress in talks. Overnight reports also said that a lot would depend on how the US government handled the ban on Huawei. Thus, if supply restrictions on the Chinese company are lifted, one may suppose that Beijing could decide to increase purchases from the US. To sum up, it looks like further negotiations will be a hard nut to crack for both sides and everything may change in every direction. Keep in mind that leaders from the US and China are expected to have a phone call next week which could be the official beginning of another round of negotiation after agreeing to a truce during the G20 summit last weekend. 

The USDJPY is trading prettly flat this morning, however, the pair keeps hovering around the crucial technical level just before the US jobs report. Looking at the weekly time frame we may arrive at a conclusion that a lot will depend on today’s release from the US as it may be a confirmation of a rate cut delivered by the Fed later this month. Source: xStation5

Markets quiet

Volatility across various classes of assets has been subdued during Asian hours trading as investors seem to wait for the NFP reading this afternoon. However, SP500 futures are pointing to a positive opening of Friday’s session being up 0.1% at the time of writing. Elsewhere, Asian indices are flat except for the Australian S&P/ASX 200 trading 0.7% higher following a release of AIG construction PMI. The index jumped in June to 43 from 40.4. In the FX market we are also not seeing any particular moves and the same concerns bond markets with the US 10Y bond yield staying below 1.95%. 

In the other news:

  • Japanese household spending grew 4% YoY in May, beating the median estimate of a 1.5% YoY increase

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