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Beijing tariff demands may expand U.S.-China ‘phase one’ trade deal significantly

A “phase one” trade deal between the United States and China was supposed to be a limited agreement that would allow leaders from both countries to claim an easy victory while soothing financial markets.

But it may morph into something bigger if U.S. President Donald Trump agrees to Beijing’s demands to roll back existing tariffs on Chinese goods, people familiar with the talks say.

China’s commerce ministry said this month that removing tariffs imposed during the trade war is an important condition to any deal. The demand has U.S. officials wondering if higher Chinese purchases of U.S. farm goods, promises of improved access to China’s financial services industry, and pledges to protect intellectual property are enough to ask in return.

Two people briefed on the talks said Trump has decided that rolling back existing tariffs, in addition to canceling a scheduled Dec. 15 imposition of tariffs on some $156 billion in Chinese consumer goods, requires deeper concessions from China.

“The president wants the option of having a bigger deal with China. Bigger than just the little deal” announced in October, said Derek Scissors, a China scholar with the American Enterprise Institute in Washington.

Scissors, who consults with administration officials, said whether Trump will agree to remove existing tariffs depends largely on whether he believes it will benefit his re-election chances. Some White House advisers would like to see China agree to large, specific agricultural purchases, while the U.S. maintains existing tariffs for future leverage. []

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UK PM Johnson: Tories Can Get Brexit Deal Passed In Next Few Weeks

–Says We Will Come Out Of The Eu On Jan. 31 []

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US Senate Approves Hong Kong Bill; Sends To House Of Representatives []

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RBA Minutes: Board Prepared To Ease Policy Further If Needed
-Board Agreed “Case Could Be Made” For A Rate Cut At The Nov Meeting []

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Setbacks In China Trade & USD Long Positions

The Sterling is roaring ahead, so is the Euro as a new weeks gets underway. The Aussie remains the weakest currency as the RBA minutes hint more rate cuts ahead. The risk-off currency complex, especially the Yen, finds renewed demand flows as the US-China trade deal prospects are dominated by pessimism again. Want to stay up to date with the latest, including trade setups? Then this report is for you. []

Mood in Beijing about trade deal is pessimistic, government source says

  • Chinese officials were troubled by Trump’s comment that there was no agreement on phasing out tariffs, a government source told CNBC.
  • China said earlier this month the two sides have reached an agreement on the tariff rollback. However, Trump said a week ago he has not agreed to scrap tariffs on Chinese goods.
  • The Chinese are looking carefully at the political situation in the U.S. including the impeachment hearings and the presidential election, the source said. []

China cuts short-term funding rate for first time since 2015

China’s central bank unexpectedly trimmed a closely watched lending rate on Monday, the first such cut in more than four years and a signal to markets that policymakers are ready to act to prop up slowing growth.

The People’s Bank of China (PBOC) said on its website that it was lowering the seven-day reverse repurchase rate CN7DRRP=PBOC to 2.50% from 2.55%.

The move cheered China’s bond market and comes just two weeks after the PBOC cut the borrowing cost on its medium-term lending facility (MLF), used by banks for longer-dated funding needs, by the same margin.

Both cuts raise the likelihood that the PBOC will trim its new benchmark loan prime rate (LPR), off of which many lenders base their mortgage rates, this week in a bid to free up funds to credit-starved parts of the economy. []

Ministry: China, U.S. trade negotiators in close contact

Top trade negotiators for China and the United States agreed in their latest phone call to remain in close communication after “constructive” discussions on each other’s core concerns for a phase-one deal, the Ministry of Commerce said on Sunday.

Experts and business leaders said they hope the world’s two largest economies will resolve their trade disagreements through dialogue, while respecting international rules.

In a brief online statement, the ministry said Vice-Premier Liu He, a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side in the China-U.S. economic dialogue, had a phone conversation with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Saturday morning. []

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BoC’s Poloz: Canadian Wage Inflation Now Above 4% In Most Measures []

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