Threat of US-China Trade War, Price Drops in the UK, Surprise Rate Commentary from Citi: What’s Happening in the Global Economy?
Significant developments are taking place globally regarding economic policies, trade tensions, and currency movements. In the UK, the pace of decline in retail prices is slowing, while potential trade war threats between the US and China remain a topic of concern. Economic actors in Europe and Asia are also reassessing their financial and trade situations.
Trade Tension Between China and the US China emphasized that there will be no winners in a trade war following US President Donald Trump's announcement of a 10% additional tariff on all products imported from China. The Chinese Embassy in Washington stated that the economic and trade cooperation between the two countries benefits both sides. Trump indicated that these tariffs would be enforced unless illegal drug flows are halted. Liu Pengyu noted that China has taken steps against drug trafficking following the agreement between President Joe Biden and Chinese President Xi Jinping. These discussions create uncertainties regarding the future of trade relations between the two superpowers and place pressure on the global economy.
Hong Kong's Role as a Financial Center Under Scrutiny The US House of Representatives' Select Committee on the Chinese Communist Party alleged that Hong Kong has become a center for financial crime, urging Treasury Secretary Janet Yellen to reassess banking sector relations. The letter indicated that Hong Kong has become a central hub for trade control violations, such as exports of Western technology to Russia and oil purchases from Iran. During this period of questioning US policies towards Hong Kong, it seems likely that relationships among global financial centers will be redefined. The deepening ties between China, Iran, Russia, and North Korea have the potential to alter balances within the financial system.
Citi Strategists' Interest Rate Cut Assessment Citigroup strategists suggested that the US Federal Reserve should halt interest rate cuts. In a period where other economists on Wall Street are making similar calls, strategists argued that it would be appropriate for the Fed to suspend its easing policy unless weak employment data emerged. Economic indicators and employment data in the US continue to be crucial in shaping monetary policies. This approach from Citi strategists causes markets to carefully observe the Fed's next move.
Expectations for Yuan and Dollar Exchange Rate Citi Research projected that the yuan could gradually weaken against the dollar in the coming weeks, a forecast linked to Trump's promise of a 10% additional tariff on imports from China. Potential pressures on China's currency policies may lead to the establishment of new balances in trade relations. It is noted that measures need to be taken to prevent fluctuations in the markets.
Retail Price Decline Accelerates in the UK According to a survey by the British Retail Consortium, the decline in store prices in the UK has slowed. Year-on-year store price deflation was recorded at 0.6% in November, compared to 0.8% in October. Helen Dickinson, CEO of BRC, indicated that upcoming wage increases might be reflected in prices, suggesting this could signal the end of falling inflation. Cost pressures in November have begun to manifest, particularly in line with Chancellor of the Exchequer Rachel Reeves' budget.
Food inflation decreased from 1.9% in October to 1.8%, while non-food products saw a decline of 1.8%. This slowdown in prices is closely monitored in terms of consumer confidence and spending trends. Economists continue to analyze how price dynamics will shape in the upcoming period.
Trump's Trade Policies and Their Effects Nomura analysts stated that the trade barriers Trump has imposed on China could be implemented swiftly and that this is not a surprise. With Trump’s cabinet members not yet fully determined, tariffs are expected to be enforced in January. These trade policies have the potential to impact relations between the US and China, as well as global trade flows. Analysts emphasize the need for caution against possible market fluctuations stemming from these developments.
Dollar Decision from Iran and Russia Iran’s Central Bank Governor Mohammad-Reza Farzin announced that Iran and Russia have abandoned the dollar in mutual trade and are now conducting transactions using their national currencies, the ruble and the rial. The two countries have been pursuing plans to use their national currencies instead of the dollar since July 2022. This move is seen as an effort to strengthen the search for independence in the economic relations of two countries under US sanctions. Conducting trade in national currencies is viewed as a strategy to mitigate the impact of Washington's sanctions.
OPEC+ Supply Situation and Oil Policies Iran’s OPEC representative Afshin Javan indicated that there is limited room for OPEC+ to stimulate oil supply. Javan noted that the supply wave from the US shale oil industry is effective, limiting the impact of production cuts. OPEC+ is currently in a period where producers are reassessing halted supplies. Javan's statements suggest that oil market production policies need to be reorganized. Some African members' inability to pay their dues is also among the challenges faced by the organization.
EU Sanction Proposal for Chinese Firms The European Union has proposed sanctions against some Chinese firms alleged to be supporting Russia's war efforts. The European Commission is also considering additional restrictions on Russian oil tankers to prevent Moscow from circumventing restrictive measures. Suitable measures in this regard are aimed to be taken during the G7 Foreign Ministers' meeting in Italy. It is noted that the measures to be taken by the EU require the full support of its 27 member countries. Sanctions emerge as a potential issue that could escalate tensions in international relations.
Wall Street's Outlook on the S&P 500 It is reported that Wall Street expects about a 17% increase in the S&P 500 by the end of 2025. Deutsche Bank's Chief Global Strategist Binky Chadha set a target of 7000 points, particularly based on unemployment and economic growth data. This optimistic outlook provides clues about how markets may shape in the future. The sustainability of economic growth plays a significant role in boosting investor confidence.