Publication date: 5 June 2019 | Covering: May 2019
Monthly Briefing
- US-China tariffs escalate sharply May 10: US raises rates from 10% to 25% on US$200bn Chinese goods; China retaliates
- US blacklists Huawei Technologies May 23; Chinese government designates unreliable foreign entities list
- Fed April 30–May 1: Holds 2.25–2.50%; “patient” maintained; Powell dismisses both near-term cut and hike
- Global equity markets fall sharply through May; safe-haven assets rally; rate cut expectations build
- Jamaica IMF programme review positive; tourism season solid; BOJ policy rate steady
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; domestic mortgage demand sustained
US-China Trade War Escalates Dramatically
May 2019 delivered the most significant escalation in the US-China trade war since its inception, upending market expectations of an imminent deal and reopening the question of whether any negotiated settlement was achievable in the near term. On 10 May, the United States raised tariff rates from 10 to 25 per cent on approximately US$200 billion of Chinese imports, a step that had been threatened but widely expected to be averted as negotiations progressed. China responded on 13 May by announcing retaliatory tariffs of 25 per cent on approximately US$60 billion of US goods, effective 1 June. The mutual escalation represented a significant step backward from the December 2018 ceasefire agreed at the G20 Buenos Aires summit.
The trade confrontation deepened further on 23 May when the United States placed Huawei Technologies — the world’s largest telecommunications equipment manufacturer and second-largest smartphone maker — on the US Commerce Department’s Entity List, effectively blocking the company from purchasing components from US suppliers without a government licence. The Huawei designation elevated the trade conflict into a technology and national security dimension that would be harder to resolve through tariff negotiations alone, and produced a sharp deterioration in market sentiment. Global equity markets fell materially through May, with technology stocks particularly hard hit by concerns about disrupted supply chains and restrictions on US semiconductor exports to China. For Jamaica, the deterioration in global trade conditions represented a headwind for the broader developing economy context in which the island operated.
Federal Reserve Holds; Market Pricing Shifts
The Federal Open Market Committee met on 30 April to 1 May and held the federal funds rate steady in the 2.25 to 2.50 per cent target range, as universally expected. Chair Powell’s post-meeting press conference struck a notably equivocal tone on the rate outlook: he characterised the current below-target inflation as “transitory” rather than a structural signal requiring a policy response, while maintaining the “patient” stance adopted in January. Powell indicated that neither a rate cut nor a rate hike was appropriate at that moment, seeking to manage market expectations that had begun to price in easing. The FOMC statement continued to emphasise the strength of the US labour market, with the April non-farm payrolls report showing a robust 263,000 jobs added and the unemployment rate falling to 3.6 per cent, a 50-year low.
The May trade war escalation shifted market dynamics significantly after the FOMC meeting. By the end of May, federal funds futures markets were pricing in two or more rate cuts before year-end, reflecting the combination of trade war headwinds to growth and below-target inflation. The ten-year US Treasury yield fell notably through May as investors sought safe havens and priced in a more accommodative Fed path. For Jamaica’s mortgage market, the direction of US interest rates was an important external parameter: a shifting Fed toward eventual easing would create a broadly more favourable international borrowing cost environment.
Jamaica’s Mortgage Market Through May
Jamaica’s residential mortgage market maintained its positive trajectory through May 2019, underpinned by BOJ monetary policy continuity, NHT programme lending, and active commercial bank competition for qualified borrowers. The NHT’s J$6.5 million individual ceiling with 0 to 4 per cent subsidised rates remained the most accessible pathway to home ownership for the contributor population, and the trust’s lending pipeline continued to reflect demand from a growing Jamaican middle class. Commercial mortgage rates remained competitive, and the housing construction and development sectors maintained their activity levels.
Jamaica’s external position continued to benefit from the IMF’s programme framework, which provided both discipline and credibility to the fiscal and monetary policy mix. Tourism arrivals through the first five months of the year were broadly positive, and remittance inflows remained a consistent source of household income support. The global trade war turbulence of May had not produced direct transmission into Jamaican credit conditions, but the deterioration in global growth expectations was a medium-term risk to the island’s external demand environment.
Looking Ahead
The G20 Leaders’ Summit in Osaka at the end of June will provide the next major diplomatic opportunity for US and Chinese leaders to discuss the trade dispute, with markets watching closely for any signal of de-escalation or renewed negotiating momentum. The Federal Reserve’s June 18 to 19 meeting will follow closely, with markets now expecting that the FOMC will signal the possibility of rate cuts later in the year, even if it holds steady in June itself. For Jamaica, the domestic fiscal and monetary policy picture remains constructive, and the island’s resilience to the current external turbulence reflects the structural improvements achieved through years of programme discipline.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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