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ICBC Financial Market Daily Review - December 5, 2018

I. Previous Day's News
International News
1. U.S. President Donald Trump on Tuesday held out the possibility of an extension of the 90-day trade truce with China but warned he would revert to tariffs if the two sides could not resolve their differences. Trump said his team of trade advisers led by China trade hawk U.S. Trade Representative Robert Lighthizer would determine whether a “REAL deal” with Beijing was possible. “If it is, we will get it done,” Trump wrote in a Twitter post. “But if not, remember, I am a Tariff Man.” White House Economic Council Director Larry Kudlow said that a reduction in Chinese tariffs on U.S. cars, agricultural and energy commodities would be a “litmus test” for whether U.S.-China trade talks were on track. Washington also expects Beijing to promptly address structural issues including intellectual property theft and forced technology transfers, U.S. officials have said. Investors who pushed equity prices sharply lower are grappling with uncertainty over whether U.S. President Donald Trump will strike a deal to avert an escalation of America’s trade war with China, the U.S. Treasury secretary said.
2. President and Chief Executive Officer of the U.S. Federal Reserve Bank of New York, John Williams expects further interest-rate hikes continuing next year since the U.S. economy is “in really good shape,” reinforcing the Fed’s upbeat tone in the face of growing doubts in financial markets. Even as Williams told reporters he expects the U.S. expansion to carry on and surpass its previous record around mid-2019, stock markets headed lower Tuesday morning while a potentially worrying trend of “inversion” continued to grip Treasury markets. Williams said lots of signs point to a “quite strong” and healthy labor market, and he predicted economic growth of around an above-potential 2.5 percent in 2019.
3. Prime Minister Theresa May suffered embarrassing defeats on Tuesday at the start of five days of debate over her plans to leave the European Union that could determine the future of Brexit and the fate of her government. On the first day of debate, before the main vote on December 11, her government was found in contempt of parliament and then a group of her own Conservative Party MPs won a challenge to hand more power to the House of Commons if her deal is voted down. That could reduce the likelihood of Britain leaving the EU without any deal, prompting sterling to recover some of its losses after the vote on contempt drove it down to levels not seen since June last year.
4. On Tuesday, Bank of England Governor Mark Carney defended the central bank’s projections for the potentially major economic impact of Brexit which angered some lawmakers opposed to Prime Minister Theresa May’s plans for leaving the European Union. Carney told lawmakers that the scenarios set out by the BoE reflected preparatory work to ensure banks and other lenders were ready for Brexit, and were not off-the-cuff forecasts. Carney stressed the worst-case scenarios were “low-probability events in the context of Brexit” which the central bank needed to consider to make sure Britain’s banking system could withstand any Brexit shocks.
5. OPEC and its allies are working toward a deal this week to reduce oil output by at least 1.3 million barrels per day, four sources said, adding that Russia’s resistance to a major cut was so far the main stumbling block. OPEC meets on Thursday in Vienna, followed by talks with allies such as Russia on Friday. Russian sources have indicated Moscow could contribute some 140,000 bpd to a reduction, but Middle East-dominated OPEC insists Russia cut by 250,000-300,000 bpd.

Domestic News
6. China Financial News published a commentator's article to commemorate the 40th anniversary of the start of reform and opening-up, saying that economic system reform should gather pace, focus on improving the property rights system and ensuring the market-oriented allocation of factors of production, and promote new reform breakthroughs in the fundamental and key areas. In addition, finance sector will be opened wider in an active and orderly manner, and equal importance will be attached to wider financial opening-up and better financial regulatory coordination.
7. Chinese Premier Li Keqiang recently said that the entire year's major objectives and tasks can be fulfilled but it should also be noted that current domestic and international situation is complicated, the downward pressure on the economy is increasing, regional trends are divided, and difficulties and conflicts should be fully estimated.
8. PBC Governor Yi Gang pointed out in his article that maintaining economic and financial stability has always been an important goal, and every successful financial reform is inseparable from good economic and financial environment. Therefore, macro-control especially monetary policies must be adjusted flexibly and moderately according to changes in the economic situation, and counter-cyclical regulation must be strengthened.
9. The criticism of China's poor protection of intellectual property rights has always been one of the Sino-US trade friction disputes. On Tuesday, China's National Development and Reform Commission and dozens of other ministries and commissions jointly issued a notice on the memorandum of cooperation on joint disciplinary action against severely dishonest subjects in the field of intellectual property (patent), taking one or more of the following disciplinary measures against the object subject to joint disciplinary action, including not accepting applications for issuance of bonds.
10. In order to prevent and defuse material risks, China's National Development and Reform Commission issued a notice specifying the disposal of direct debts of "zombie enterprises" and de-capacity enterprises by category. Active recourse should be made of solvent de-capacity enterprises to effectively prevent malicious evasion and cancellation of debts.