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THE DAILY MACRO BRIEF: US/China talks, Possible Shutdown, IMF concerns, May’s plan B...

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02/11/2019 | 09:03am EDT

New trade negotiations between the US and China will be held this weekend in Beijing. The backstop issue is still unresolved and Theresa May is asking for more time. The chances of a new shutdown are increasing. The IMF cites four concerns on the horizon, and warns about the economic slowdown.

New discussions between Beijing and Washington. US Deputy Assistant Negotiating Representative Jeffrey Gerrish is in Beijing to prepare the next trade talks, scheduled for Thursday and Friday, with Chinese officials. US Trade Representative Robert Lightzer, Treasury Secretary Steven Mnuchin, Chinese Vice Premier Liu He and Central Bank Governor Yi Gang will attend. Some rumors indicate that Xi Jinping and Donald Trump will meet around March 15.

Theresa May needs more time. While the issue of the Brexit agreement remains unresolved and the British Prime Minister is due to present her plan B for Brexit this week, Secretary of State for Housing James Brokenshire announced yesterday that May intends to ask MEPs to give her more time to negotiate with Brussels. The "backstop" remains the main point of friction. Theresa May refused the solution of a permanent customs union with the EU.

After a 20-day break, it is likely that the administration will be paralyzed again. Yesterday, the White House Secretary General told Fox News that a new "shutdown" could not be ruled out if Republicans and Democrats fail to find a compromise on the financing the wall at the Mexican border before February 15.

The Summit on Global Governance begins with a disturbing speech from the IMF. Christine Lagarde expressed her concerns yesterday on the first day of the World Government Summit in Dubai regarding the global economic slowdown. The Managing Director of the International Monetary Fund explains that trade tensions, uncertainty over Brexit, the slowdown in the Chinese economy and tightening borrowing rates (as governments, companies and households accumulate "very large debts") are affecting global growth, which is "slower" than expected. It then calls on governments to prepare for a possible "economic storm" and to avoid protectionism. She also discussed the evolution of public debt in Arab countries since the end of the 2008 financial crisis (in ten years, it has risen from 64% to 85% of GDP) and the "uncertain" growth prospects.

In other news. In the United Kingdom, the GDP growth rate was 0.2% in the 4th quarter of 2018 (less than expected, consensus: +0.3%). Status quo in Russia, the Central Bank maintained its key interest rate at 7.75%. Moody's rating agency upgraded Russia's sovereign rating from Ba1 (speculative) to Baa3 (lower average quality). GDP in "continental" Norway (excluding hydrocarbon production and maritime transport) increased by 0.9% in the 4th quarter of 2018 (consensus +0.7%), and by 2.2% for the whole year (after 2.0% in 2017). David Mapass, about to become the next head of the World Bank, launched a round of criticism of the institution, which he believes spends too much, is corrupt, and is too generous with China.

Romain Fournier
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