“Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.
“The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets. The funding markets are clearly stressed.”
“It was the NY Fed’s first such rescue operation in a decade, the last occurring in late 2008.
“”It’s unprecedented, at least in the post-crisis era,” said Mark Cabana, rates strategist at Bank of America Merrill Lynch.”
“It seems like somebody needed a whole lot more cash than they had anticipated, and for some reason other banks were reluctant to lend it.
“Maybe that’s because the other banks really were short of cash.
“But it might also be because they knew who the counterparty was and they were afraid that even a 12-hour loan ran the risk of not getting paid back. It’s the kind of thing that happens during a banking crisis—which, as it happens, is the last time the Fed had to intervene in the repo market.”
“A rate cut on Wednesday would lower the Fed’s target policy rate to a range of between 1.75% and 2.00% and dovetail with moves by central banks around the world to ease monetary policy to offset the impact of a U.S.-China trade war and other risks to the global economy.”
“The survey, released on Tuesday, surveyed 235 fund managers who manage a combined total of $683 billion, showed that 38% of fund managers expect a recession within the next year — the highest net percentage to say so since the depths of the financial crash in 2009.”
“American business is holding back on investment, and that’s holding back the economy.”
““Relief credit card holders get from the Fed won’t be huge. It’s not something that’s going to move the needle for most folks with just this one rate reduction,” Matt Schulz, chief industry analyst at Comparecards. com, told FOX Business.
““In terms of reduction on your actual monthly bill, you’re only talking about a few dollars a month for most people.””
“Britons are £128 a year worse off on average than they were in 2008, according to a report that reveals household incomes were hit harder in the wake of the financial crash than official figures have revealed.
“The New Economics Foundation said figures used to calculate GDP, which is adjusted to take account of rising prices, failed to include essential items that affected the cost of living over the last 10 years.”
“A record of number of Britons sought debt advice in the first half of 2019, and charities are warning that households are vulnerable to any future economic turbulence.
“More than 331,000 people contacted StepChange wanting help, the charity said in a report published Wednesday.”
“European car registrations dropped 8.6% in August as volume brands Nissan, Renault, Fiat and Volkswagen posted double-digit sales declines, according to industry data published on Wednesday…
“Registrations fell to 1.07 million cars last month from 1.17 million a year earlier across the European Union and EFTA countries, the Brussels-based association said in a statement.”
“India is the world’s fourth-largest economy, but it is showing signs of a slowdown. Almost 300,000 people have lost their jobs in recent months in the car industry alone and the unemployment rate country-wide is at a three-year high.”
“China’s $14 trillion economy, second in size only to the U.S., accounts for almost a third of global growth each year. … The fire-hose stimulus that followed the global financial crisis kept China from a Great Recession like the U.S. suffered but swelled the debt mountain.
“Now it’s trying to do just enough to prevent a hard landing — where the economy flat-lines or flirts with recession — while avoiding another debt buildup.”
“The pain for [Singapore’s] exporters continued in August with shipments down for the sixth consecutive month.
“Signs that the worst is over are now being offset by fresh geopolitical concerns that could hurt trade.
“Non-oil domestic exports fell 8.9 per cent from the same month last year…”
“Japan’s exports slipped for a ninth straight month in August as the Sino-U.S. tariff dispute hit demand from China and other Asian trading partners, heightening risks for the world’s third-largest economy.
“The negative reading adds some pressure to the Bank of Japan to expand stimulus at its policy meeting on Thursday…”
“A Turkish regulator on Tuesday told banks to write off 46 billion lira ($8.1 billion) of loans by year end and set aside loss reserves, one of Ankara’s most aggressive moves to clean up the worst remnants of last year’s currency crisis.”
“Shuttered schools, hospital services pared back to a minimum, officials on strike — Argentina’s southern oil-producing province of Chubut is a microcosm of the country’s crippling economic crisis.
“The debt-burdened Patagonian province is suffering the same explosive cocktail of galloping inflation, a plummeting peso and colossal debt.”
“Nigeria has received a legal hiding after a UK court awarded a private company a $9.6 billion judgment debt against the West African nation. The ruling has generated significant attention in both domestic and international media.
“This is understandable given that the sum amounts to 20% of the country’s foreign reserves. This means it poses a significant threat to its economy…
“How did Nigeria end up in this costly situation? For the answer, we must look back to January 2010 and a gas supply contract that went horribly wrong.”
“After issuing more than 17 billion cedis ($3.1 billion) in bonds over the past two years to bail out banks and repay energy arrears, Ghana faces a new debt risk. Independent power producers dismissed a plan by Finance Minister Ken Ofori-Atta to renegotiate deals for surplus supply and said they will only accept a termination settlement of $2 billion.
“The West African nation has almost double the capacity to meet its peak demand of about 2,700 megawatts, a luxury that contributed to an additional 5.1 billion cedis, or 1.5% of gross domestic product, to Ghana’s liabilities this year alone.”
“…extremely low interest rates may lead to slower growth by increasing market concentration. If this argument is correct, it implies that reducing interest rates further will not save the global economy from stagnation.
“The traditional view holds that when long-term rates fall, the net present value of future cash flows increases, making it more attractive for firms to invest in productivity-enhancing technologies. Low interest rates therefore have an expansionary effect on the economy through stronger productivity growth.
“But if low interest rates also have an opposite strategic effect, they reduce the incentive for firms to invest in boosting productivity. Moreover, as long-term real rates approach zero, this strategic contractionary effect dominates. So, in today’s low-interest-rate environment, a further decline in rates will most probably slow the economy by reducing productivity growth.”
“World Bank President David Malpass said the global economy is poised to decelerate more than previously estimated, with the pile of negative-yielding debt indicating growth will be slower in the future.
““The slowdown in global growth is broad based,” Malpass said Tuesday in a speech in Washington. Recent developments signal the 2019 world expansion will likely to fall short of the lender’s June projection of 2.6% in real terms, Malpass said.”