“A debt-fueled crisis is headed to Dubai, the trading hub of the United Arab Emirates.
“Despite Dubai’s diversification away from oil over the past few decades, the entire region is still dependent on energy revenues. The fall in prices for crude oil over the past half decade have squeezed Gulf governments and private enterprises alike. Brent crude oil, the European benchmark, fetched more than $100 a barrel in mid-2014 versus around $65 recently, according to data from media company Bloomberg.
“The slowdown in global trade hasn’t helped Dubai either. In a similar way to Singapore and Hong Kong in the far east, Dubai has set itself up as a trading hub in the Gulf, benefiting from the flow in international trade. However, the recent slump in trade, combined with growing protectionism means that the city’s business will suffer…
“”The backdrop of weak growth across the Gulf and the risk of overcapacity after the 2020 World Expo means that the GRE’s revenues could be weaker-than-expected, harming their ability to service these debts,” the Capital Economics report continues.
“In other words, unless something changes to help Dubai’s economy, the debt problems could sink the city.”
“The worldwide slump in smartphone sales and the slowing semiconductor cycle have been increasingly weighing on Southeast Asia, with official manufacturing output figures weakening across the region.”
“Hong Kong unveiled a less expansionary budget for fiscal year 2019/20 on Wednesday, though with relief measures for individuals and businesses at a time of economic uncertainty and trade tensions as growth slowed sharply… Hong Kong’s open and trade-reliant economy has been buffeted by external risks, including an economic slowdown in China, cooling property prices and stock market volatility.”
“The mountain of debt encumbering China’s economy looks set to grow after private companies piled on leverage at the start of 2019.
“Having spent two years trying to de-leverage — reduce debt piles — in an attempt to rebalance its economy China appears to have changed its policy. Its a risky decision given the already staggering levels of leverage that exist in the Chinese economy.”
“China’s steel mills may have taken a wrong turn by adding millions of tonnes of new high-end capacity just as the country’s car sector, a key steel consumer, undergoes its first contraction in decades, cutting metal demand.
“Hot-rolled coil, steel that is heat processed into metal sheets used for car bodies and household appliances, was a steady profit driver for mills but orders are now slowing down, two major steel mills and several traders told Reuters.”
“A fresh wave of investor concern loomed over Metro Bank tonight [UK] after an emergency cash call and news of a regulator probe spooked the City.
“The dog-friendly challenger bank made a shock move to rush out its full-year results this evening in a bid to quell concerns after announcing a plan to tap up investors for a further £350m of capital following a major accountancy blunder last month.”
“…countries that are home to globally systemically important banks such as Italy, Japan, Spain, and Switzerland have FSCs that lack good processes and tools to implement macroprudential policies.
“Financial institutions, especially internationally active banks, are incredibly interconnected, so financial stability can only be strong as the weakest link.”
“Italy’s massive sovereign debt pile has kept the country’s credit rating on the cusp of junk status, while political uncertainties and a fragile financial sector have served as strong headwinds…
“Against this backdrop, business confidence has weakened, manufacturing conditions have deteriorated, the rate of inflation has decelerated, and political dominance appears to be shifting. Italy has also entered its second recession in four years.”
“Greece’s foot-dragging on some key economic reforms is raising creditor concern, putting at risk a planned debt relief measure next month and a rebound in its stock and bond markets.”
“I think spiking income inequality causes recessions and that means we’re in for a doozy… I think rapidly rising income inequality is a good predictor of a recession. That’s because the bottom 99 percent of the income distribution envies the top 1 percent. To close the gap, they take financial risks…
“For example, during the run-up to the Great Depression, shoe shine boys gave out stock tips; during the dot-com boom, taxi drivers day-traded Internet stocks; and in years before the 2008 recession, people with low incomes borrowed way more than they could afford – taking on subprime mortgages — to buy houses.
“When the debts could not be repaid, people lost their homes, consumer spending — which accounts for some 70 percent of GDP growth — went down, companies responded to the drop in demand by cutting millions of jobs – which initiated a doom loop of declining incomes, spending, and demand.”
“Last year was the worst for returns from global equities since the financial crisis, according to research published by Credit Suisse.
“The bank’s Global Investment Returns Yearbook, compiled with the London Business School, provides long-run return data and risk premiums. Its latest edition, published on Tuesday, found returns from global equities declined 9% in 2018.”
And not unconnected to that:
“Federal Reserve Chairman Jerome Powell told U.S. lawmakers that the central bank plans soon to reconsider its years-long effort to shrink its $4 trillion balance sheet, given recent “crosscurrents” in markets and the global economy. The Fed has been shrinking the balance sheet since 2017, after swelling total assets from around $900 billion in the wake of the 2008 financial crisis.”
Read the previous ‘Economy’ thread here and visit my Patreon page here.