“[As in 2008], the key factor is weakness within a bank’s business model, and of course, whether that weakness is shared by other banks, either by practice or exposure. That’s where Germany’s Deutsche Bank, and indeed, other European banks find themselves today. The weakness isn’t so much from issuing and selling risky mortgages as much as from larger, systemic and business practice issues.
“At the macro level, a weak European economy is a big factor. As the economy slows down, banking activity slows down as well. What’s more, the European economy isn’t immune from the trade tensions of the world. As much of Europe struggles with low or zero growth, falling demand from China and different European economies, the pressure on banking business models increases.
“This recession pressure is seen in the low and even negative interest rates European banks charge for borrowing money. Though banks make money on fees, they also gain from interest rate spreads on lending. Subdued economic activity means a loss of lending business for banks…
“Unfortunately, as in 2008, the interconnected global financial system results in major banks and financial institutions have exposure to financial risk in multiple markets. A whopping 41 percent of American banks’ foreign balance sheet exposure is to European banks.
“That’s too big to ignore or to avoid. Problems that begin with Deutsche Bank will certainly be problematic for the Europe and America, which will, of course, impact the health of the entire global financial system.”
https://www.theepochtimes.com/what-will-the-next-banking-crisis-look-like_3100949.html
“The threat of a no-deal Brexit has sent profits and sentiment in Britain’s financial services falling at their fastest pace since the global financial crash a decade ago, a CBI/PwC survey showed on Tuesday…
“…the level of business activity at banks fell at its fastest pace in 28 years.”
“Yes Bank slumped to the lowest level in a decade, leading a selloff in Indian lenders. IDFC Securities Ltd. says the blood-letting in the stock isn’t done yet.
“The brokerage slashed the bank’s target price to 35 rupees, implying a 19% drop from the current level of 43 rupees.”
“Growth worries for the government escalated, with the output of India’s eight infrastructure sectors contracting for the first time in more than four years in August.
“The index of eight core infrastructure industries declined 0.5% during the month, according to government data released on Monday.”
https://www.livemint.com/news/india/core-sector-growth-contracts-0-5-in-august-11569844267669.html
“Manufacturing sentiment throughout Asia remained mostly bleak in September amid trade tensions and waning global demand.
“Purchasing manager indexes for South Korea, Japan, and Indonesia were still in contraction territory, with South Korea’s slipped by one point to 48.”
“South Korea’s exports sank 11.7 percent in September from a year earlier, extending their slump to a 10th consecutive month, data showed Tuesday, hurt by still weak prices of semiconductors and the yearlong trade row between the United States and China.”
https://www.koreatimes.co.kr/www/biz/2019/10/488_276432.html
“Japanese bond traders just had a taste of what it’s like when the nation’s central bank and pension fund aren’t there to support them.
“Bond futures tumbled by the most since 2016, triggering margin calls for investors, after the worst 10-year debt auction in three years. Yields across the curve climbed, while the sell-off also spilled into Treasuries and European debt.”
“The Reserve Bank of Australia has driven its official cash rate below 1 per cent for the first time as it battles to head off rising unemployment and stimulate a stalling economy.
“The cut, of 25 basis points to 0.75 per cent, is the RBA’s third cut since June and comes after jobs data showed the unemployment rate had risen to 5.3 per cent from 4.9 per cent at the start of the year.”
https://www.abc.net.au/news/2019-10-01/rba-cuts-rate-to-new-low-of-0.75pc/11562908
“In its latest attempt to tackle a chronic cash shortage, Zimbabwe’s central bank on Monday banned cash transactions using the mobile money service, amid a surge in prices of goods and services.
“Years of economic crisis have left the country short of bank notes and commercial banks have been rationing cash withdrawals to a maximum daily limit of 100 ZWL (S$1.38) per customer, forcing people to turn to electronic financial transactions.”
“Sorting out the debt issue may not be enough for Argentina to solve its growth problem – as a reference, per capita GDP in 2019 is now roughly the same as it was in 2009. But it is certainly a necessary condition.
“For starters, the debt crisis is the main factor behind the exchange rate pressure that fuels inflation, and the high financing costs that discourage private investment – the only remaining real potential engine for growth.”
https://www.americasquarterly.org/content/argentina-no-plan-b-and-no-easy-choices
“Manufacturing activity in the US midwest contracted in September, continuing a patch of weakness in the region over the summer.”
https://www.ft.com/content/4cc30be6-e389-11e9-9743-db5a370481bc
““The first sign of a change in the labor market, we and the market are going to scream recession,” said Russell Silberston, a money manager at Investec Asset Management, which is overweight cash…
“A forecast issued Monday from Fitch Ratings that global growth will hit an eight-year low in 2020 also pointed to a lack of traction for economies around the world. It came after some of the loudest doubts about the ability of monetary policy were voiced by top-level policy makers and politicians, adding to their resonance.”
“It has been a pivotal few months for financial markets. China and Europe have halted the global stocks rally, oil has cooled dramatically and rising recession worries have sent gold and government bonds charging again…
“The switch back into support mode by the top global central banks has swollen the amount of bonds trading at negative rates — where investors pay rather than get paid to lend – to a record $17 trillion.”
“Companies across the globe sold a record amount of bonds in September, as low borrowing costs fuelled issuance and investors searching for yield lapped up the new debt.”
https://www.ft.com/content/eef8234c-e3c0-11e9-b112-9624ec9edc59
“…the worst may not be over for markets in October, during what has been described as the “jinx month” for stocks by Stock Trader’s Almanac. “It is widely known as a bearish month, mainly due to the fact it has had huge crashes in 1929, 1987, and 2008…””
Read the previous ‘Economic’ thread here and visit my Patreon page here.
