“Stock markets don’t always correlate well with what’s going on in the economy, but a largely lacklustre showing this year may well be sending out warning pulses.
“In the week ending 11th October, the best of the world’s major markets, the US S&P index, fell by nearly 7 per cent. Most of this happened in two days, marking one of the most volatile periods in the index’s 90-year history. Other markets reacted in similar fashion, but consider that while the S&P is still up 3.5 per cent this year, the FTSE 100 is down over 8 per cent, the 600 firms in the broad Eurostoxx index are down 7 per cent, the Nikkei is off 1 per cent, and the Chinese Shanghai Composite index is already in a bear market, having fallen 24 per cent. Markets have been skittish indeed.
“As this global expansion gets ever longer — and if America’s keeps going until June next year, it’ll be the longest since records began in 1854 — the IMF is worried about the financial consequences, in combination with rising oil prices, a concentration of debt risks, especially in China, and, inevitably, the politics of trade conflict.
“Brent oil at around $80 a barrel is at its highest level since 2014, and up 17.5 per cent since January. Global demand is firm, but supply constraints are tightening the market… Some market watchers think prices could top $100 next year. One thing that has led every global downturn for the last 40 years has been a trend of rising oil prices.
“Total non-financial debt in countries with systemically important financial sectors now stands at $167 trillion, or over 250 per cent of aggregate GDP, up $54 trillion and 40 per cent of GDP since 2008.
“China accounts for the bulk of the rise in emerging market indebtedness. In recent weeks, economic data releases have pointed to a steady slowdown in growth, and policies are being relaxed to address this shortfall. Top officials last week made a point of saying in coordinated fashion that everything is fine—which is usually code for the opposite.
“…trade conflict is just one element in a new adversarial relationship that seems to be spilling into investment relations between China and the west, and might spill into geopolitical relations in the South China Sea and indeed, in parts of China’s Belt and Road universe. These are things no stock market can price for or discount. Caveat emptor.”
“US President Donald Trump has no intention of de-escalating trade tensions with China, according to Axios citing three unnamed sources with knowledge of his private conversations, believing instead that more time is required to make “Chinese leaders to feel more pain from his tariffs”. According to Axios, one source told them that Trump “wants them to suffer more” from tariffs…”
“China will roll out more policies to support private companies, including measures to help them raise funds in capital markets, the government said, as economic growth slows to a pace not seen since the global financial crisis a decade ago… The central bank has taken a number of steps this year to spur commercial banks to lend.”
“Asian markets fell across the board in on Tuesday as investors remained cautious amid rising global tensions. The Greater China markets fell, reversing gains seen over the last two sessions. The Shanghai composite shed 2.26 percent to close at 2,594.83 while the Shenzhen composite declined 1.92 percent to 1,300.29. Meanwhile, Hong Kong’s Hang Seng index fell 3 percent in afternoon trade.”
““For the latest quarter of Q1 2018, all five of our EWI combinations are flashing warning signs… reflecting Hong Kong’s high credit-to-GDP ratio, real property prices, debt-service ratio, and real effective exchange rate (REER), all of which are above their long-run trends.” Ominous, right? Akin to Hong Kong’s black rainstorm signal in terms of warning levels. The news is not much better for Hong Kong’s neighbour to the north with China’s EWI also sitting in warning territory….”
“While there was nothing to suggest that the BOJ will change its policy, the report indicates that it is aware of longer-term risks to the banking system, former central bank official Nobuyasu Atago said. “The report is suggesting that banks need to be cautious about the impacts of any potential economic downturn,” said Mr Atago, now chief economist at Okasan Securities Group Inc in Tokyo.”
“The poorest or bottom 30% income households felt inflation at 8% in August 2018, according to the latest release from the Philippine Statistics Authority (PSA).
The figure was higher than the 7.3% recorded in July 2018 and the 3% posted in August 2017.”
““No one can brush this off,” says a financial executive with an operation in the kingdom. “The crown prince [will be] forever associated with this [murder].” At risk is Riyadh’s ability to attract the foreign investment, skills and technology it needs to build the modern economy Prince Mohammed has promised and address the urgent need to provide jobs for a youthful population blighted by rising unemployment.”
“Nigeria’s plan to raise a $2.86 billion Eurobond and simultaneously raise minimum wage could lead to a significant deterioration in the country’s financial position unless it is able to raise revenues. The new external borrowing will take the country’s total external debt stock to $24.9 billion from the current $22.16 billion, 6 percent of the GDP of Africa’s largest economy.”
“Mozambique turned down a restructuring plan by lenders, including Credit Suisse, for one of the state-owned companies at the centre of a hidden-debt crisis, the government’s financial advisers said…
“The crisis over hidden debts led to the Southeast African nation defaulting on bond repayments.”
“An increasing number of migrants leaving Venezuela are in need of the international protections normally granted asylum seekers. Most Venezuelans have been finding refuge in other neighboring South American countries. Unfortunately many of those who have fled to Brazil have experienced increasing levels of xenophobia.”
“Violent deaths of Venezuelans in Colombia rose more than threefold in the first nine months of the year compared with the same period in 2017, as more desperate migrants flooded across the border to escape an economic crisis back home, a report released on Monday showed.”
“European shares fell to their lowest levels in nearly two years on Tuesday as a new batch of third-quarter earnings failed to offset growing concerns on Brexit, Italy’s budget, Saudi isolation, trade wars, Chinese growth and U.S. interest rates.”
“Hoarding may seem an extreme response… but as another EU summit slips by without the UK and Brussels reaching agreement, it is one more bosses may decide cannot be ducked. A number of companies are talking about stockpiling — especially in critical sectors such as high-value manufacturing, pharmaceuticals and food. For instance, Airbus has asked its suppliers to start “ramping up” their stocks of components.”
“Property transactions in prime central London locations have dropped below levels seen during the financial crisis to hit a new record low, new research shows. Brexit uncertainty and stamp duty increases are to blame, as declines have also been recorded more broadly across England and Wales… It comes as the Treasury is facing a £1billion drop in stamp duty from property sales this year – sparking fears a tax crackdown on homeowners has backfired spectacularly.”
“The European Commission will likely decide Tuesday on whether to formally demand a member state to take back, revise and resubmit its budget, a step it has never taken before. Vice President Valdis Dombrovskis and economic affairs chief Pierre Moscovici have already stated that Italy’s budget is in serious breach of European Union rules and asked the populist government to change tack. Italy, so far, has refused.”
“A renewed bout of distress among Greek and Italian banks illustrates a deeper problem in Europe: the financial system’s overseers haven’t done nearly enough to prepare for the next crisis. They should redouble their efforts before the window of opportunity closes… there’s one theme in common: investors don’t believe that the banks’ balance sheets are as strong as they need to be. Unfortunately, their doubts are well-founded.”