Trump’s Asia trip to tackle trade, defence and economic ties

This weekend saw the beginning of an Asian tour for the Presidential team. Beginning in Japan, Trump will then visit South Korea tomorrow before spending 2 days in China, 2 in Vietnam and finishing up with 2 days in the Philippines.

Trump’s first topic of conversation with the newly re-elected Japanese prime minister Shinzo Abe was trade: the President made upfront requests for Japan to build more and more cars within the United States. He stated “Try building your cars in the United States instead of shipping them over. Is that possible to ask? That’s not rude. Is that rude? I don’t think so.”

Given Japan’s particular strength in engineering, carmaking and international trade, it’s no surprise that the US imports vehicles in their hundreds of thousands, but Japanese carmakers are already huge contributors to the US economy. According to The Japan Automobile Manufacturers Association, three quarters of all Japanese cars sold in the US in 2017 were built in North America. Just how Trump can persuade the likes of Nissan, Honda or Toyota so shift production and nudge that figure toward 100% isn’t known, but it hasn’t taken long for the President to make what’s likely to be the first of many demands and requests that’ll emerge on his Asian tour.

Aftermath of the UK’s first rate hike

The aftermath of the Bank of England’s first interest rate rise in 10 years has been muted with sterling remaining lower as investors focus more on the negative and dovish language the Bank employed on Brexit and the state of the UK economy. On Sunday Governor Carney said that the Bank might not be able to cut interest rates if inflation pressures are too great should the UK’s deal with the EU turn out to be worse than expected.

This morning’s Times reports that the EU has started to draw up the outlines of a future trade deal with the UK after Theresa May signalled that Britain is willing to pay more than EUR 60 billion as a ‘Brexit bill’. An agreement to talk about trade pre-Christmas could support the pound into the beginning of 2018.

Reserve Bank of Australia to decide on rates

Unlike the Bank of England we do not foresee the Reserve Bank of Australia hiking interest rates overnight tonight. Interest rates should stay at 1.5% with our expectation that they will remain at that level for another year or so. We will receive updated forecasts as well of the Australian economy that should show that both the outlook for inflation and growth have both softened.

AUD remains soft following the resignation of the Deputy PM after it emerged that he was not an Australian citizen.

Have a great day.