“Markets often fail to predict major market-moving events even though in retrospect, they should have been obvious to anticipate. A prime example of such a failure was the 2008 global market bust, which followed the extraordinary U.S. housing and credit market bubble.
“An earlier example was the world equity market panic in late July 1914 that followed the outbreak of World War I and that occasioned the closing for a few months of both the New York and London Stock Exchanges. As historian Niall Ferguson reminds us, on the eve of World War I, markets remained buoyant even though all the signs were long since pointing in the direction of the world sleepwalking toward a catastrophic war.
“One has to wonder whether something similar might not be happening today. At a time that the world’s major central banks are winding down their many years of ultra-easy monetary policies, global asset and credit markets remain very buoyant. They remain so even though a number of important fault lines in the global economy have appeared in plain sight, which could cause major financial market turbulence within the next 12 months…
“Among the more dangerous of these fault lines is Italy… The danger that Italy might trigger a new round of the European sovereign debt crisis stems not simply from the likelihood that its very high public debt level and its very troubled banking system could soon be exposed as the European Central Bank ends its bond -buying program later this year…
“An economic fault line closer to home for the United States is that of Brazil, the world’s eighth-largest economy with a public debt of $1.5 trillion. One reason for thinking that Brazil could come under severe market pressure in a less benign global liquidity environment is that, with a budget deficit of 8 percent of GDP, a public debt of almost 80 percent of GDP, and a very feeble economy, its public finances are on a clearly unsustainable path…
“Perhaps more troubling yet than the shaky economic prospects for Italy and Brazil are those for China, the world’s second-largest economy and the world’s major international commodity consumer. A significant Chinese economic slowdown would come at an especially inopportune time for the emerging market economies, which already are being hit by a sharp reversal of capital flows back to the United States in the wake of the Federal Reserve’s monetary policy tightening.
“…the Trump administration would be making a grave mistake in thinking that present global market buoyancy is a sign that all is well in the world economy. Rather, it would seem that the administration should be now taking advantage of the present market calm to plan how it might respond to a global economic crisis…”
“An otherwise healthy economic backdrop has been overshadowed by extreme moves that are haunting cross-asset investors. From Italian government obligations to commodity markets and even tech shares, illiquidity fears are rising. It’s especially a concern in high-yield credit, where investors holding cash bonds can face steep penalties if they rush for the exit.”
“The United States will impose a 25% tariff on another $16 billion worth of Chinese goods starting August 23, US Trade Representative Robert Lighthizer announced Tuesday.”
“Amid the trade war with the US, China has reported a current account deficit of $28.3 billion in the first half of 2018—a first in 20 years for the world’s second largest economy. China also recorded its first quarterly current account deficit in nearly 17 years this year, ending its dream run of accumulating trade surplus as top exporter for years.”
“A.P. Moeller-Maersk A/S, the world’s biggest cargo carrier, warned Tuesday its earnings would be weaker than expected this year due to rising fuel prices, soft freight rates and escalating trade tensions. Maersk… moves about 18% of all containers and is considered a barometer of global trade…”
“German industry may be feeling the pain from the trade war as its output fell more sharply than expected last month.”
“Two-thirds of manufacturers fear the UK will enter recession in the next year, a survey has found. Uncertainty around Brexit and the effects of international trade wars are also negatively affecting manufacturers’ confidence, said Lloyds Bank’s commercial wing after surveying more than 200 British companies.”
“Increases in life expectancy in the UK have stalled and the slowdown is one of the biggest among 20 of the world’s leading economies, ONS data shows… There was also a slowdown in other countries across Europe and Australia.”
“Turkey is facing mounting pressure to announce an emergency rise in interest rates as rampant inflation, a plunging currency and American sanctions pushes one of the world’s key emerging market countries to the brink of crisis. Analysts said Turkey’s central bank would have no choice but to increase borrowing costs aggressively in the coming days to stem the fall in the lira, which is down by almost a third against the US dollar in the past 12 months and hit a record low this week.”
“A further drop in the Turkish lira to 7.1 versus the dollar could largely erode the country’s banks’ excess capital, investment bank Goldman Sachs has warned.”
“The Central Bank Egypt (CBE) has announced that the foreign debt rose to $88.2 billion from $73.9 billion in Q3 2017-2018 fiscal year, compared to same period last year, reported Reuters.”
“Pakistan is sliding into a financial crisis and the new government led by Imran Khan will have a battle on its hands to turn around an ailing economy mired in debt. Khan’s Pakistan Tehrik-e-Insaaf (PTI) party, which is set to be sworn in the middle of the month, faces harrowing economic challenges of fast depleting reserves and bridging a whopping trade deficit.”
“Recession in Brunei caused by shrinking oil prices began to hurt expatriate workers including from Bangladesh.”
“…an analyst, Egie Akpata, told The Guardian that the confidence [of foreign investors] had been low for long due to economic issues, stressing that the current political stand-off could only worsen it. Meanwhile, in another round of intervention, the Central Bank of Nigeria (CBN) has injected $210million into the inter-bank foreign exchange market to ensure the availability of forex and also meet customers’ requests in various segments.”
“Brazil is the world’s eighth-largest economy. With a public debt of more than $1.5 trillion, a Brazilian debt crisis has the potential to cause real waves in the global financial system. The IMF underlines that in the best of circumstances, Brazil’s public debt is on a dangerous path… With a massive corruption scandal at Petrobras, the state oil company, having tarnished almost the entirety of Brazil’s political class, Brazilian populism is on the march, and political divisions have increased in the country.”