Section:GDN 1N PaGe:42 Edition Date:190906 Edition:01 Zone: Sent at 5/9/2019 19:59 cYanmaGentaYellowbl
- The Guardian Friday 6 September 2019
(^42) Financial
▼ Qingdao port in Shandong , China,
where the stock market responded
positively to news of fresh talks
PHOTOGRAPH: YU FANGPING/VCG/GETTY
Jasper Jolly
The US and China have agreed to reopen
trade talks next month as concerns
grow that the tariff war between the
world’s two largest economies could
tip the global economy into recession.
Senior negotiators will meet in early
October, after a call on Wednesday
between the Chinese vice-premier,
Liu He , and the US trade represent-
ative, Robert Lighthizer , and the US
treasury secretary, Steven Mnuchin.
Investors welcomed the news,
pushing the S&P 500, the US
benchmark stock index, up by 1.4%
and the Dow Jones industrial average
up by 1.7% by 5pm yesterday.
Germany’s trade- sensitive Dax
index closed up 0.85% , while France’s
Cac 40 index rose by 1.1%. In Shanghai,
the CSI 300 index had earlier closed
more than 1% higher.
Investors remain cautious, how-
ever, with little sign that Donald Trump
has any appetite to back down despite
negative eff ects on the US economy.
The president recently hailed his “very
successful trade battle” with China.
Mark Haefele , t he global chief
investment officer at UBS Wealth
Management , said: “ We still don’t
expect a deal to be reached before the
2020 US presidential elections .”
Gao Feng, a spokesman for China’s
commerce ministry, struck a relatively
positive tone , saying: “Both sides
agreed that they should work together
and take practical actions to create
good conditions for consultations .”
US-China talks
to resume amid
recession fears
P
olitical events have
always had an impact
on the world’s
fi nancial markets
but rarely have they
mattered quite so
much as they do now.
Take two current examples.
The latest news from Germany
yesterday was dire, with a plunge
in factory orders adding to the
risk of a technical recession – two
successive quarters of negative
growth. Normally, this would be a
reason to sell German shares but
the Frankfurt stock market was up.
Why? Because trade tensions
between the US and China appear
to have eased. Hopes of a deal
when top-level talks resume in
Washington next month boosted
share prices on most bourses.
Germany, an export-dependent
economy, has more than most to
gain from a trade truce.
The London Stock Exchange
was one market not to join in the
party. That’s because the leading
index of shares – the FTSE 100 – is
dominated by companies that do
most of their business overseas
and whose sterling earnings rise as
the pound goes down.
Sterling is currently on the rise,
not because there has been any
good economic news but because
investors think the government’s
defeats in a series of parliamentary
votes has reduced the chances of a
no-deal Brexit.
There was even a spike in the
pound’s value when Jo Johnson ,
the prime minister’s brother,
announced he was quitting.
Sterling has become a barometer
of Brexit.
That’s not to say nothing elsematters. Share prices are being
supported by the belief that the US
Federal Reserve and the European
Central Bank are going to cut
interest rates this month.
But tweets from the White House
and the numbers going through
the division lobbies at Westminster
currently matter more. And that
should be a reason for caution
because Donald Trump is likely
to take a tough line with China
until the presidential election in
November next year and Britain is
heading for a general election, the
outcome of which is impossible
to predict.
The sensitivity of fi nancial
markets to political events means
they will remain volatile.Trouble in Argentina
Christine Lagarde looks to have got
out of the International Monetary
Fund just in time , because an
almighty storm is about to break
over the fi nancial assistance
provided by the Washington-based
organisation to troubled Argentina.
The problems with the $57bn
(£46bn) loan to shore up South
America’s second-biggest economyFor fi nancial markets, political
events have rarely been as
important as they are now
Business view
Larry Elliottare manifold. For a start, under
its own rules the fund is not
supposed to lend to countries
with unsustainable debts unless a
restructuring happens fi rst. It broke
that rule in Argentina’s case.
As is usual, Argentina had to
abide by strict conditions in order
to qualify for IMF assistance. When
these terms were not met, the
IMF eased the conditions and lent
more money to the government of
President Mauricio Macri.
The point of IMF loans is to put
struggling economies back on track.
In Argentina’s case, much of it went
to hedge funds that had previously
lent recklessly to the country.
Macri was a president the
IMF liked the look of: a fi scal
conservative and an infl ation hawk.
But he has not delivered.
Infl ation is rampant; the economy
is contracting and foreign debt is
soaring. The size of the loan and
the speed with which it has been
disbursed raises the suspicion that
the IMF is doing its best to keep its
man in Buenos Aires in place.
But Macri’s grip on power is
loosening and in an attempt to
stave off defeat in next month’s
presidential election he has raised
public sector salaries and cut taxes
on consumption.
Under the terms of the agreement
with the IMF, Macri is supposed
to be reducing Argentina’s budget
defi cit, not increasing it.
What does all this mean? It means
Argentina is heading for a political
crisis, an economic crisis and a debt
crisis. It means that Argentina is
heading for a default when it ought
to have had its debt restructured.
It means that the IMF has failed to
learn from its mistakes.
And it means that Lagarde’s
successor – Kristalina Georgieva –
will have questions to answer.WeWork reworked
Well, who would have thought it?
Reports from the US suggest that the
offi ce rental company WeWork will
have a price tag of $20bn rather than
the $47bn previously mooted when
it is fl oated on Wall Street.
Potential investors have gleaned
that WeWork is not an Uber or an
Amazon with a disruptive business
model. It is a real estate company
that has lost the thick end of $3bn in
the past three years.Argentina is heading
for a political crisis, an
economic crisis and a
debt crisis. The IMF
has failed to learn
from its mistakesRELEASED BY "What's News" vk.com/wsnws TELEGRAM: t.me/whatsnws