The Day at a Glance | July 15 2020

The Top

· Trump withdraws Hong Kong`s preferential treatment; sanctions Chinese officials.

· FED warns of a slower recovery in light of COVID-19 outbreaks

· Economic indicators: Solid recovery is expected regarding industrial production in the US (4.3% e. June) and growth in China`s GDP (2.5% e. 2Q20).

· Expectations of OPEC+ reducing production cuts beginning in August increase.

· China will start testing digital currency in food delivery platforms.

Economic environment

US President Donald Trump announced that he signed an executive order yesterday to end Hong Kong`s economic preferential treatment. In a press conference held yesterday, the President assured that the city will be treated just like the rest of China and signed a law to sanction Chinese officials that implemented restrictions on Hong Kong citizens´ rights. The order eliminates commercial privileges – which up to now had allowed the exportation of technology and goods without tariffs – as well as economic privileges from the autonomous city. It`s believed that this measure could affect activity in Hong Kong`s port, even though the city still has other attractive characteristics such as low taxes, a good geographic location and a fixed convertibility rate to dollars. China has criticized the measure and considered it an interference in internal affairs. Pekin`s government threatened with responding more firmly through retaliatory measures – which would include sanctions on US officials and entities – in order to protect China`s legitimate interests. The short term economic implications are not very significant outside of Hong Kong but sustain friction between both countries and pave a road to their economic disassociation in the long term. To this is added the statement made by the US a couple of days ago regarding the illegality of China`s territorial claims in the South China Sea. Trump also blamed China yesterday for the COVID-19 outbreak that affects the whole world.

Members of the Federal Reserve have stated that the economy could recover slower than first expected given the acceleration of COVID-19`s spread in the country. Through statements and public discourses, FED officials have seemed to be more pessimistic regarding a recovery and have said that the rebound seen in the labor market has started to lose momentum. According to Reuters, 46 of the 50 US states recorded an acceleration concerning cases last week and deaths increased at a countrywide level for the first time since April. “A bunch of companies large and small are realizing this is not a two-month issue and recasting their business,” assured Thomas Barkin, President of the Richmond FED, who added that this could weaken recovery in employment. Robert Kaplan, of the Dallas FED, assured that this implies idle capacity in the economy, which prevents reaching the bank`s inflationary objective. For Patrick Harker, of the Philadelphia FED, the increase of COVID-19 cases recorded in the country could cause a deeper, negative effect on the economy and on consumer confidence, which is something that was backed by James Bullard, of the St. Louis FED, who assured that a second wave of the virus in autumn could also increase volatility in markets.