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Fast Comment NorwayTemporary trade truce offers a welcome boost to markets, but long-standing areas of conflict remain

  1. Temporary trade truce offers a welcome boost to markets
  2. Long-standing areas of conflict remain and already-imposed tariffs continue to dampen global growth
  3. Mainland GDP (Norway) holding up well, however, boosted by a sharp rise in petroleum investment
Temporary trade truce offers a welcome boost to markets
Trump and Xi Jinping have agreed to restart trade talks and the US will hold off from additional tariffs for now. The temporary trade truce, as agreed during this weekend’s G20 summit, has offered a welcome boost to markets, buoying Asian stocks overnight and lifting US equity futures. Safe havens have retreated, with the yield on 10-year US government bonds up by about 3 basis points from recent lows to currently trade around 2.03 percent. Having said that, Trump is “in no hurry” to finish a deal and he will not sacrifice a good deal, from a US perspective, with speed. While markets have welcomed the easing of tensions between the US and China, we bear in mind that the previous temporary trade truce was followed by a collapse in trade talks in May this year. It remains to be seen if the same will happen again. The key issue is that long-standing areas of conflict remain, such as alleged theft/forced transfer of technology, as well as patent and copyright disagreements. Finally, already-imposed tariffs are still in place, something which continues to have a dampening effect on global growth rates, especially in the manufacturing sector. For instance, recently released PMIs from China have shown a further slowing of industrial activity. The manufacturing PMI from Markit dropped by much more than expected by consensus, to 49.4 in June, from 50.2 in May. The official manufacturing PMI was flat, at 49.4, contrary to consensus expectations of a small uptick. Both PMIs are now below the threshold between expansion and contraction. The trade truce between China and the US, agreed at the sidelines of the G20 meeting, removes some uncertainty, but it will not stop growth from falling unless a more lasting deal is agreed upon, in our view. Further economic stimulus will mitigate, but not completely counter, the impact of the trade war and the slowdown in structural growth.
Mainland GDP (Norway) holding up well, however, boosted by a sharp rise i petroleum investments
From a domestic perspective, the Norwegian mainland economy is holding up well, despite the global slowdown, although traditional non-oil industrial sectors are showing signs of slowing. However, overall manufacturing output is being boosted by a sharp rise in petroleum investment this year. In aggregate, employment growth remains solid too and thus unemployment continues to trend lower. While our base case is for Norges Bank to refrain from further rate rises due to lingering global growth concerns, we admit that there is a risk for one more rate rise in September.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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