“Worrying excesses are building up in the world’s $52 trillion nexus of shadow banking and investors risk serious losses when the financial cycle turns, the ratings agency DBRS has warned.
“The hunt for higher yield has led to a surge in leveraged loans, collateralised loan obligations (CLOs), and other arcane high-risk instruments with echoes of the Lehman crisis.
“While banks have been forced to raise their capital buffers and are deemed much safer than in 2008, the hazards have migrated to dark pockets of the vast non-bank sector. This now makes up 62pc of the $97 trillion assets of the financial industry…”
“The global economy is likely heading toward a “significant market downturn,” according to billionaire Paul Singer. “The global financial system is very much toward the risky end of the spectrum,” Singer said during a panel Thursday at the Aspen Ideas Festival.
““Global debt is at an all-time high. Derivatives are at an all-time high.””
“On the backs of central banks around the world tilting, dovish, the value of [Emerging Market corporate] debt surged higher to an eye-watering $12.5tn.”
“Exclusively relying on the stock market as a measure of economic health could cost President Trump dearly in the run up to the 2020 election… The stock market has no track record of predicting economic recessions.
“The same, however, is decidedly not true of the bond market… A clear indication that the U.S. bond market is worried about the possibility of an economic recession is that U.S. long-term interest rates are significantly below short-term interest rates.”
“Donald Trump and Xi Jinping have been urged to reach a trade deal or risk setting the global economy on a downward path as world leaders gathered in Japan for the G20 summit…
“But financial markets fell across Asia on Friday amid growing fears that the talks will fail to break the logjam and see the US president carry out his threat of additional tariffs on Chinese goods.”
“Corn futures headed for the biggest quarterly gain since the end of 2010 after the spring deluge in the U.S. Midwest left planting at the slowest since records dating back to 1980, eroding prospects for production.
“Cotton went in the other direction. The fiber was poised for the steepest quarterly slump since the three months ended September 2014, partly as U.S.-China trade tensions capped demand.”
“China’s factory activity is expected to have pulled back for a second straight month in June, according to a Reuters poll of analysts, as domestic business conditions worsened and the protracted Sino-U.S. trade war hit demand…
“A downbeat reading, along with somber indicators seen in May and April, would suggest economic growth is likely to slow this quarter and increase the prospect of further policy easing in the coming months.”
“Baoshang was a small, seemingly healthy bank that authorities took over in May. A bank run was avoided, but not all of Baoshang’s interbank liabilities were guaranteed. Suddenly people realized they could actually lose money as counterparties. A new kind of fear was injected into the market, triggering a liquidity crisis…
“…the run on smaller banks could spread to the wider financial system. Chu estimates that bad debt could make up as much as 20 to 25% of the sector. Societe Generale called this possibility “the source of under-appreciated risk for the global economy.””
“China’s Shanghai Interbank Offered Rate (SHIBOR) shot up to a record of 13.44 percent last week as deteriorating loans at rural banks forced panicked short-term borrowing…
“The People’s Bank of China flooded the banking system with 50 billion yuan ($7.2 billion) of short-term liquidity to push the overnight rate back to 1 percent.
“However, Diana Choyleva of Enodo Economics warns that financial distress from China’s growth crunch is building in the non-bank sector in what she warns is a “very slow-motion crisis.””
“Russia’s economic prospects are unlikely to improve substantially anytime soon, for a simple reason: Putin’s indifference.
“He is confident that Russians – many of whom depend on the state for their incomes, in the form of pensions and welfare benefits – will not revolt.”
“Slowing capital inflows to Lebanon and weaker deposit growth increase the risk of a debt rescheduling or other steps that may constitute a default despite fiscal consolidation measures in the 2019 draft budget, Moody’s Investors Service said…
“Lebanon’s public debt is 150% of gross domestic product, among the largest in the world.”
“Tunisia’s ageing president, Beji Caid Essebsi, a major figure in the country’s transition to democracy in the wake of the Arab spring, is in critical condition in hospital, officials have said. News of Essebsi’s illness adds to an already dramatic day in Tunis, where two suicide bombers blew themselves up in separate attacks…
“…high unemployment has stoked unrest.”
“South Africa’s economy remains stuck in its longest downward cycle since 1945, adding to the risk that it may fall into its second recession in a year.
“The economy entered the 67th month of a weakening cycle in June, according to the Reserve Bank’s Quarterly Bulletin released Thursday in the capital, Pretoria. That’s after gross domestic product contracted the most in a decade in the three months through March.”
“Brazil’s central bank on Thursday slashed its 2019 economic growth forecast and, assuming constant exchange rates and interest rates, said inflation is likely to be lower than previously expected across its forecast horizon through 2021.”
“Brussels has sounded a warning that Boris Johnson’s familiar use of “false promises, pseudo-patriotism and foreigner-bashing” to win the keys to Downing Street is locking Britain into a no-deal Brexit.
“In a withering attack on the Conservative leadership frontrunner, Guy Verhofstadt dismissed the idea that he could dump Theresa May’s withdrawal agreement, withhold payment of the UK’s £39bn divorce bill and still negotiate a free-trade deal in Brussels as a “myth”. And he said that, years after the referendum, Johnson was “a man who continues to dissemble, exaggerate and disinform”.”
“…finance still heads Europe’s worry list. Italy in particular stands out. Its budget and debt problems all but ensure a return to the multi-stage financial crisis that has plagued Europe off and on since 2010.
“This next round promises to be the most severe. Italy, after all, is ten times the size of Greece, the center of the last phase of the crisis.”