Brief Macro: Foreign Investment Law/Trade War/Huawei/Eu Vs PRC and more

In this briefing:

1. Foreign Investment Law/Trade War/Huawei/Eu Vs PRC
2. Fed Optimism Dims with Sentiment
3. Fed Reflates the ‘buyside Bubble’?
4. When Job ‘Quality’ Prevailed over ‘Headcount’
5. China Economics:  China’s Strategy on Trade War Has Worked

1. Foreign Investment Law/Trade War/Huawei/Eu Vs PRC

China News That Matters

• NPC approves “rushed” foreign investment law
• Trump in no hurry as “China threat” grows 
• Huawei struggles to build trust
• EU takes a stand: China as “systemic rival”

2. Fed Optimism Dims with Sentiment

By Steve Blitz, Chief US Economist

• FOMC sees economy growing as expected, but risks no longer “balanced”
• Ending QT now underscores their concerns about slowing growth
• Swapping MBS for Treasuries when QT stops is backdoor QE

3. Fed Reflates the ‘buyside Bubble’?

By Steve Blitz, Chief US Economist:

• Central banks, led by the Fed, have restored market bullishness
• But the December selloff could still be a taste of future trouble
• A decade of low interest rates has created a powerful search for yield

4. When Job ‘Quality’ Prevailed over ‘Headcount’

• A 387k decline in employment didn’t weigh on the jobless rate of 5.2% according to the latest labor survey data. As the labor participation rate declined in 4Q18, roughly 2.1mn of those in the labor pool voluntarily passed up the job search, to ease any employment demand-supply mismatch.

• For those employed particularly in the non-farm, production sectors led by manufacturing and construction, the quality of jobs generated dominated the lack of headcount gains in determining incomes, if not, uplifting purchasing power. If we exclude direct government job creation from the labor stats, we obtain a non-farm, private job creation of 1.1mn (vs 3Q18: -8.6k) up 3.8%YoY. Average weekly work hours were 43.2 versus 40.6 a year-ago suggesting more overtime work. Salaried workers grew by 1.4mn (+5.6%YoY) employed mainly from private establishments. Underemployment fell to 15.6% in the latest job survey vs 18% a year-ago.

• As inflation recedes, the robust non-farm employment and better job quality won’t be compelling for policymakers to rush any form of monetary accommodation. Since the jobs data or GDP prospects are not as vulnerable to sharp downswings due to onshore catalysts, e.g., upbeat public investments, consumption recovery, despite a less-than-encouraging global backdrop, the Central Bank may focus on possible risk of a liquidity crunch and emergence of positive, real interest rates in determining the policy options for monetary accommodation this year.

5. China Economics:  China’s Strategy on Trade War Has Worked

First, during the past couple of weeks, the most important event regarding the Chinese economy is the China US trade talk.  It is reported that both sides have made a preliminary agreement on trade war truce. It is an extraordinary development.   At the beginning of this China US trade war, most analysts had underestimated the seriousness of this trade conflict. Then after a series of escalations, analysts tend to overestimate this conflict by exploring the possibility of a full-scale conflict between China and US including national security, military and economic competition etc. we agree that China and US are in direct competition in almost every field. The issue is President Trump. He has to deal with the internal issues including the Muller investigation and the Democrats. So far, he has failed to make essential progress in dealing with internal opponents. He also just failed another Kim Trump summit. In our opinion, he is keen to make a deal with China. He is in a much weaker position than President Xi. Although at the beginning President Xi was under some criticism, currently, his authority is with no significant challenge. President Xi has also pretended to be humble when dealing with Trump. In our opinion, China’s strategy, such as buying time by deliberate delays or deceptions, has worked.