A “Phase One” US-China trade deal that partially rolls back tariffs now appears within reach and, as a result, we no longer expect further renminbi weakness in the remaining weeks of this year. But the bulk of the US tariffs imposed since the start of last year will probably remain in place. And given the lack of Chinese concessions on industrial policy there is still a good chance of a renewed escalation in tensions further ahead. Meanwhile, plans to merge struggling small banks with their larger and healthier counterparts will help to reduce the near-term risks to financial stability but may worsen the moral hazard created by state intervention.
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