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US-China trade discussions are making progress. Six memoranda of understanding are in draft that cover technology transfer and cyber theft, intellectual property rights, currency, agriculture and non-tariff barriers to trade. Expectations are that a 1 March tariff-hike will be avoided. A US-China deal is unlikely to spark a double-digit rally, but it will support Chinese shares. Chinese stocks reacted sharply, climbing nearly 2.0% today. After a deep correction in 2018, they have been on a rally since November, up over 20%. The largest gainer was Shanghai Aerospace Automobile Electromechanical, up 10%.
The Chinese central bank has not cut its key interest rate. It has focused on micro tuning market-based rates, increasing credit growth and lowering borrowing costs. Still, a cut is coming, in our view, and it will profoundly affect domestic equity prices. Despite clear signs of global deceleration, China’s economy is stable. January sales of passenger vehicles in China collapsed 18% to just over 2 million. January home-price growth slipped to a 9-month low, showing the property markets are cooling as the economy softens.