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ICBC Financial Market Daily Review - November 15, 2018
 

International News
1. Prime Minister Theresa May won the backing of her senior ministers for a draft European Union divorce deal, freeing her to tackle the much more perilous struggle of getting parliament to approve the agreement. “The collective decision of cabinet was that the government should agree the draft withdrawal agreement and the outline political declaration,” she said. During a five-hour meeting, no ministers threatened to resign over the deal. The agreement will give London’s vast financial center only a basic level of access to the bloc’s markets. A watered-down relationship that officials in Brussels have said all along is the best arrangement that Britain can expect. Such an arrangement would give British firms a similar level of access to the EU as major U.S. and Japanese firms, while tying it to many EU finance rules for years to come.
2. China has delivered a written response to U.S. demands for wide-ranging trade reforms, three U.S. government sources said on Wednesday, a move that could trigger negotiations to bring an end to a withering trade war between the two economies. A U.S. team led by Treasury under Secretary David Malpass discussed trade issues with a Chinese team via videoconference on Tuesday, a U.S. Treasury spokesperson said.
3. OPEC and its partners are discussing a proposal to cut oil output by 1.4 million barrels per day (bpd), three sources familiar with the issue said, although Russia may not be on board for such a large reduction. Worried by a drop in oil prices due to slowing demand and record supply from Saudi Arabia, Russia and the United States, the Organization of the Petroleum Exporting Countries is talking about a U-turn just months after increasing production. The sources said a cut of 1.4 million bpd -- equal to 1.4% of world demand -- was one option discussed by energy ministers from Saudi Arabia, non-OPEC Russia and other nations in Abu Dhabi on Sunday.
4. Federal Reserve Chair Jerome Powell said that the introduction of press conferences after every Fed meeting next year means all meetings are now “ live” for possible rate increases. “The market is going to have to get used to that,” Powell said of the fact that the Fed may now raise rates at any of its eight regular policy meetings, and not just the four at which it had been holding press conferences in the past.
5. Japan’s economy contracted in the third quarter, hit by natural disasters and a decline in exports, a worrying sign that trade protectionism is starting to take its toll on overseas demand. The 1.2% annualized contraction in July-September was more than the median estimate for 1.0% growth in annual terms. It followed a robust 3.0% annualized growth in the previous quarter (April-June). Weakening external demand is the first reason for economic contraction. Strong typhoons and earthquakes caused factories to stop production and suppressed consumption. However, economists said the interference is temporary and the decline in exports is even more worrying. Japan’s economy may pick up in the fourth quarter. However, the decline in exports suggests that the recovery may be dragged down by trade protectionism, which may increase the pressure on policy makers to resort to fiscal stimulus.

Domestic News
6. Premier Li Keqiang of the State Council of China said on Tuesday that notable changes have taken place in the global environment and China’s economy is also confronted with certain downward pressure. China has great resilience and broad space for maneuver in coping with them. China rejects a scattergun approach to stimulating the economy and will continue to streamline administration, cut taxes and fees and create a market environment in which companies, be they Chinese or foreign-owned, are treated as equals and compete on a level playing field.
7. According to the statistics released by National Bureau of Statistics, nationwide investment in real estate development saw a YOY rise of 9.7% during January-October, slower than 9.9% during January-September. The floor space started this year witnessed a YOY increase of 16.3%, which slowed down compared with 16.4% during January-September.
8. Tax and fee cut is the recipe to mitigate the downward pressure on China’s economy and difficulties of small and micro private enterprises. This move should start with SOE reform by transferring partial state-owned assets to social security as a breakthrough. Scholars attending the annual financial meeting on Tuesday held that China still has room for substantial tax and fee cuts and can consider transfer of partial state-owned assets to social security. In addition to debt-for-equity swap, capital replenishment can also be adopted to reduce leverage, which can be accomplished through reasonable state-owned capital layout.
9. As adverse external environment persists, the market placed focus on the measures taken by China to boost economy through fiscal stimulus. However, the report released by HSBC Global Banking & Markets on Wednesday pointed out that the tax cut received the most attention, and lower added-value tax rates are estimated to save RMB1.3 trillion taxes for enterprises, the larger scale than the U.S. this year.
10. Following less unnecessary intraday interventions by Chinese regulators, the hype over individual stocks rose recently, and non-performing stocks (such as *ST Changsheng) continued to surge. Shenzhen Stock Exchange stressed late on Tuesday that it will continuously watch company information disclosure and stock trading, and severely crack down on all kinds of illegal activities such as market manipulation and insider trading, to earnestly safeguard the trading order in the capital market.


(2018-11-15)
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