“Escalating trade tensions are posing an increasing threat to the global economy, the head of the International Monetary Fund has warned.
“”The clouds on the horizon … are getting darker by the day,” IMF Managing Director Christine Lagarde said at a news conference in Berlin on Monday.
“”The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by [the] attempt to challenge the way in which trade has been conducted, in which relationships have been handled and the way in which multilateral organizations have been operating” she said.
“Her comments follow the acrimonious end to the G7 summit in Quebec this weekend in which President Donald Trump attacked Canadian Prime Minister Justin Trudeau over trade…”
“President Donald Trump’s shortened stint at the G7 summit threw the international trading order into chaos and most likely put the US on the path to a trade war.”
“If the Fed raises rates again next week which it will, then it will be the seventh rate hike. The cumulative effect of all those rate hikes has not been felt yet but it eventually will (there’s a lag of six to nine months) and it will slow the economy as consumers spend less…”
“Sales of the riskiest subprime auto bonds in theare on pace for a record year, according to Barclays plc.”
“The fight against inflation and falling asset values in emerging markets is probably not defeated yet…The bottom line is that while EM problems haven’t seemed to hurt the broader, global economy yet, it is worth watching in order to avoid another 2015-style disruption.”
“Five year credit-default swaps that hedge against a drop in the value of Mexico’s sovereign debt have soared as the July 1 presidential election nears.”
“…lots of financial institutions around the world hold significant positions in southern European debt issues… One of the major holders of European debt is Deutsche Bank, the leading German financial institution… Too big to fail does not mean too big to fall, and in the world of European financial institutions, this is likely to be an issue over coming months. We should not discount the potential for contagious price issues for even the strongest financial institutions in the United States and around the world.”
“The British economy is showing the greatest signs of stress since the eurozone crisis and fears of a double-dip recession six years ago, as worrying reports show the steepest fall in manufacturing output and the greatest degrees of pessimism among employers since 2012.”
“French regulators said Monday they would toughen banks’ capital requirements to mitigate the risks of a future credit crunch, an early sign of tighter borrowing conditions emerging across Europe.”
“Australia’s east-coast property bubble is showing signs of deflating at a faster clip as home-lending data recorded the longest losing streak in almost a decade. Housing finance fell 1.4 percent in April, the fifth straight monthly drop and the longest stretch of declines since September 2008, when Lehman Brothers Inc. collapsed…”
“They warn that the unprecedented asset price bubble engineered by G7 central banks is a ticking time bomb that is ready to burst, after seven years of near zero interest rates and speculative excesses in bonds, stocks and real estate…
“Here is the dilemma: G7 central bank’ policy normalisation is the only option consistent with their mandate and with a return to the rules of a market economy. But when G7 Central Banks eventually exit from their unconventional policies, they will contribute to the bursting of the asset price bubbles engendered by their monetary experiment.
“This could well be the worst financial crisis ever experienced, as the level of debt and the artificial level of asset prices have no precedent.”
Read yesterday’s economy post here.