“Nonbank lending, an industry that played a central role in the financial crisis, has been expanding rapidly and is still posing risks should credit conditions deteriorate.
“Often called “shadow banking” — a term the industry does not embrace — these institutions helped fuel the crisis by providing lending to underqualified borrowers and by financing some of the exotic investment instruments that collapsed when subprime mortgages fell apart.
“The companies face less regulation than traditional banks and thus have been associated with higher levels of risk.
“In the years since the crisis, global shadow banks have seen their assets grow to $52 trillion, a 75% jump from the level in 2010, the year after the crisis ended.”
“In the 1970s it was normal for politicians to manipulate interest rates to boost their own popularity. That led to a plague of inflation. And so rich countries and many poorer ones shifted to a system in which politicians set a broad goal—steady prices—and left independent central bankers to realise it…
“Today this… is threatened by a confluence of populism, nationalism and economic forces that are making monetary policy political again. President Donald Trump has demanded that interest rates should be slashed…”
“European Central Bank policymakers are increasingly leaning towards rewarding banks for lending to households and businesses but are mostly sceptical about giving lenders a reprieve from a charge on their idle cash, four sources told Reuters.
“With the euro zone economy slowing more than expected, the ECB is again looking for ways to stimulate inflation, but with an increasingly empty-looking toolbox and just months after stopping a 2.6 trillion euro (2.24 trillion pounds) bond-buying programme.”
“China’s Imports… shrank by 7.6 per cent, after a 19.9 per cent collapse in January and February, below a Bloomberg forecast of 0.1 per cent growth.
“The new data from the General Administration of Customs means that for the first quarter of this year, China’s exports grew by 0.9 per cent while imports contracted by 4.4 per cent.”
“China’s total trade with America has slumped by 11% in the first three months of this year, the Customs department reports. That’s mainly due to a 28% (!) slump in imports to China from America in Q1, in yuan-denominated terms. Exports to the US fell 3.7% over the same three months.
“In March alone, US imports into China fell 21% while Chinese exporters actually shipped 10.6% more back to American consumers.”
“Most Asian currencies edged lower against a stronger dollar on Friday, as slower growth expectations by Singapore’s central bank reinforced concerns about the health of the global economy.
“The Monetary Authority of Singapore (MAS) on Friday kept its monetary settings unchanged after two rounds of tightening, as policymakers expect the city-state’s growth and inflation to ease in the face of “significant” global economic risks.”
“Falling house prices could lead to rising levels of unemployment, the Reserve Bank has warned, putting Australia’s financial stability at risk as the Coalition and Labor turn the election into a test of economic management.
“”There is a near-term risk that the delivery of a large volume of new apartments into a weak market could amplify price declines,” the RBA said, suggesting the influx would produce “further downward pressure”.”
“Difficulty getting finance is being blamed for a slump in house sales around the country.
“Excluding Auckland, the number of homes sold in New Zealand fell 10.5 per cent in March compared to the same time last year.
“Auckland’s sales fell 18.2 per cent year-on-year…”
“Argentina’s economy has shrunk in four out of the past seven years. And, for more than a decade, structural deficiencies have created tight constraints on the growth of real demand and prevented the economy from growing sustainably.
“When the current government, led by President Mauricio Macri, took office in December 2015, it said that its economic policies would attract foreign direct investment and lead to sustained increases in productivity. The currency crisis that erupted in April 2018 underscored the failure of its policy approach.”
“Recent abrupt gyrations in financial markets could be the “tip of the iceberg”, according to a top International Monetary Fund official.”
“…a pattern emerges where one can see that the massive increase in corporate debt was matched by large sums being diverted to share buybacks… share buybacks do not strengthen a company and prepare it for an economic downturn. Financial engineering does not always help to shore up the economy. It may result in higher prices for equities, but that is not the be all and end all of the real economy.
“Another problem is that corporate debt has undergone a severe deterioration in the rating level of company debt…
“If, as seems to be the case, there is going to be an economic slowdown that leads to a recession, the Fed can lower interest rates only so much since there is not much distance between 2.41% and zero. QE4 is a possibility, but statistics have shown that the effect of QE3 was limited. Buying stocks is a possibility that would mean the total end of price discovery in equity markets.
“It is extremely difficult at the present time to predict what possible scenarios might result from exacerbation of the corporate debt load due to decisions of the Fed. Further interest rate increases will make the debt load more burdensome while interest rate decreases will encourage corporations to carry on unperturbed with share buyback programs. The Fed is trapped between Scylla and Charybdis.”
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