Publication date: 5 February 2020 | Covering: January 2020
Monthly Briefing
- US-China Phase One trade deal signed January 15; tariff reductions; US$200bn in Chinese purchase commitments
- Fed January 28–29 holds 1.50–1.75%; economy strong; notes coronavirus as new uncertainty
- WHO declares COVID-19 Public Health Emergency of International Concern January 30; Wuhan locked down January 23
- US economy: unemployment at 3.5%; S&P 500 at all-time highs; growth firm
- BOJ rate supportive; Jamaica economy performing well; winter tourism season strong
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; strong housing demand
US-China Phase One Trade Deal: A Truce in the Trade War
The United States and China signed the Phase One trade agreement on 15 January 2020 in a ceremony at the White House, marking a significant de-escalation in the trade conflict that had dominated the global economic news cycle throughout 2018 and 2019. The deal committed China to purchase an additional US$200 billion in US goods and services over two years, including agricultural products, manufactured goods, energy, and services. In return, the United States reduced tariffs on US$120 billion in Chinese goods from 15 per cent to 7.5 per cent, while leaving the bulk of the existing tariff structure — including 25 per cent tariffs on US$250 billion in Chinese imports — in place. Phase Two negotiations were committed to, though a timeline was not specified.
The Phase One deal represented the culmination of a year of negotiating drama and tariff escalation that had inflicted measurable damage on global trade volumes, business investment, and manufacturing output. Its signing significantly improved the near-term economic outlook, reducing trade policy uncertainty and providing a foundation for a more stable US-China commercial relationship. For Jamaica, the deal was primarily significant through its positive spillover effects: the improved global growth outlook supported commodity prices, emerging market sentiment, and the external environment for small open economies. A more stable and growing world economy is positive for Jamaica’s tourism, remittances, and access to international financing.
Federal Reserve January Meeting: Stability and a New Risk on the Horizon
The Federal Open Market Committee held the federal funds rate at 1.50 to 1.75 per cent at its January 28 to 29, 2020 meeting, maintaining the rate level established by the three sequential 25 basis point cuts of 2019. The post-meeting statement assessed the economy as growing “at a moderate rate,” with labour market conditions remaining strong and inflation below 2 per cent. Chair Powell’s press conference was broadly positive in its economic assessment: the 2019 mid-cycle adjustments had “worked as intended,” financial conditions were accommodative, and the trade deal had reduced near-term uncertainty. The one new note of caution that Powell introduced was the coronavirus outbreak in China, which he described as a “new uncertainty” being monitored closely.
At the time of the January Fed meeting, the coronavirus was primarily concentrated in Wuhan and the Hubei province of China, which had been placed under lockdown on 23 January. The disease had spread to a limited number of countries through travellers from China, but the global case count outside China remained in the hundreds. Most economic forecasters were modelling the coronavirus as a China-specific shock with some spillover effects, on the analogy of the 2003 SARS epidemic. The possibility of a full global pandemic was not the central scenario. For Jamaica’s mortgage market, the January Fed communication confirmed a stable and accommodative global monetary backdrop, with the cautionary coronavirus note registering as a risk to monitor rather than an immediate threat.
WHO PHEIC: Coronavirus Escalates as a Global Risk
The World Health Organisation declared COVID-19 a Public Health Emergency of International Concern on 30 January 2020, six days before this edition’s publication. The PHEIC designation is the WHO’s highest level of alert, reserved for events that constitute an “extraordinary event” with the potential for international spread and requiring a coordinated international response. The declaration came as cases outside China were being reported in multiple countries, though the numbers outside the Wuhan epicentre remained relatively limited. Countries began implementing travel restrictions and screening measures, and the global public health community was on heightened alert. For Jamaica, the PHEIC declaration added a new dimension of risk to what had, through most of January, been an encouraging start to 2020 in terms of economic conditions and tourism performance.
Jamaica Mortgage Market: Positive Conditions Pre-Storm
Jamaica’s mortgage market through January 2020 was operating in conditions that would, in retrospect, represent the high-water mark before the COVID disruption. The Bank of Jamaica’s policy rate was at a level supportive of competitive commercial mortgage finance, and the NHT’s J$6.5 million individual loan ceiling with subsidised rates of 0, 2, and 4 per cent was supporting solid demand from the contributor base. The winter tourism season was performing well, with visitor arrivals maintaining the growth trajectory of recent years. Employment was at multi-decade highs, consumer confidence was positive, and the macroeconomic fundamentals underpinning housing demand were favourable. Remittances continued to provide important support for household finances and property purchasing activity.
The strong macroeconomic backdrop was reflected in active NHT disbursement volumes and engaged commercial mortgage market participants. Jamaica’s housing supply, while still unable to fully meet demand — particularly at the affordable end of the market — was benefiting from ongoing development activity and HAJ programmes. The IMF programme framework provided fiscal discipline and an external anchor that supported investor confidence in Jamaica’s economic management. The conditions entering 2020 were, from a structural perspective, among the most favourable Jamaica had experienced in a generation.
Looking Ahead
The coronavirus situation will be the dominant variable to monitor in February and March. The WHO PHEIC declaration signals that the international public health community regards the outbreak as a significant and potentially global risk. For Jamaica, any widespread international travel restriction would have severe economic implications given the island’s dependence on tourism. The Federal Reserve’s March 17 to 18 meeting will be the next scheduled policy decision, though an emergency inter-meeting action cannot be excluded if the COVID situation deteriorates significantly. For the mortgage market, the near-term outlook remains favourable based on current conditions, but the coronavirus risk cloud is a significant uncertainty.
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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