“As the global economy faces its sharpest slowdown since the financial crisis, one industry is both culprit and victim.
“The motor industry affects the health of the global economy far more than its share of total output would suggest: carmakers have long supply chains to source parts; they are also big consumers of raw materials and chemicals, textiles and electronics; and their fortunes affect millions of service sector jobs in sales, repairs and maintenance.
“Last year the sector shrank for the first time since the global crisis. The IMF believes this fall in output accounted for more than a quarter of the slowdown in the global economy between 2017 and 2018. The sector may also be responsible for up to a third of the slowdown in global trade growth between 2017 and 2018, the fund said last month, after factoring in the spillover effects on trade in car parts and other intermediate goods…
“Research published by Fitch Ratings earlier this year argued that this global fall in car sales could have reduced world gross domestic product by as much as 0.2 per cent — significantly more than the IMF estimates — after taking account of spillovers to other industries and the effects of lower wages and profits on household and business spending.
“Much of the downturn elsewhere appears to be cyclical: the decline followed several years of surging sales, and it came just as many carmakers were being forced to make large investments to develop electric vehicles that will be lossmaking in the near term at least. But pervasive uncertainty over trade — and the resulting worries over global growth — do not help.
“As Holger Schmieding, an economist at Berenberg, pointed out, this kind of uncertainty tends to scare consumers off big ticket purchases: “If you are uncertain . . . you don’t have to buy the car.””
“Global manufacturing shrank for a sixth straight month in October as new export orders extended their longest downturn since 2002.”
“[US] Factory orders fell 0.6% in September, the Commerce Department said Monday. Economists were expecting a 0.4% drop, according to a MarketWatch survey. Durable goods orders fell a revised 1.2%, down slightly from last week’s initial estimate of a 1.1% decline.”
“Many Americans are still recovering from the 2008 financial crisis. Almost everyone knows someone who lost a job, their retirement savings or even a home in its aftermath.
“When the housing bubble burst and sent home prices plummeting, it set off a chain of defaults that snowballed into a recession. This cautionary tale of risky lending, ballooning debt and market speculation should be a clear warning of looming perils in the student loan industry.”
“The subprime mortgage-backed bond may be dead in America a decade after it helped trigger the global financial crisis, but a security with some of the same high-risk characteristics is starting to take off.
“It’s called the non-qualified mortgage — basically a loan granted to borrowers whose checkered financial record made them ineligible for conventional mortgages. Lenders have bundled more than $18 billion worth of these loans into bonds this year.”
“The US Federal Reserve is buying Treasury bills and other high-quality collateral to pump billions of dollars of liquidity into the short-term market to make sure that a sudden spike in the overnight lending rate doesn’t happen again.
“The year-end period, when corporate tax payments are due, will be a key test of whether the Fed has regained control of the repurchase, or “repo,” rate that banks charge each other for short-term loans.”
“Among the recent troubles he thinks are connected are repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing. And every cycle ends with excess.
“The “mother of all bubbles” in the sovereign debt market, Zidle says, is the catalyst that will likely trigger the next recession. He expects that to happen between mid-2020 and the end of 2021.”
“Worryingly for policymakers at the European Central Bank, who have restarted a 2.6 trillion euro (£2.3 trillion) bond-buying programme after cutting interest rates on deposits in September, the malaise appears to be spread across the region… struggles appear widespread and manufacturing activity in Germany, Europe’s largest economy, remained stuck in recession last month…”
“The UK has fallen into an earnings recession following “the worst set of quarterly results in years” in Q3, with more than half of companies reporting lower profits for the second consecutive quarter, according to The Share Centre.
“The third quarter of 2019 saw profits fall by 4.5% overall…”
“Italy’s south entered a recession in 2019, with GDP down by 0.2%, while the country’s GDP in the centre and north grew 0.3%, according to a report by the Association for Industrial Development in the Mezzogiorno (SVIMEZ) released Monday.”
“Europe’s private banks face a growing crisis as their business models are undermined by negative interest rates the boss of Edmond de Rothschild Vincent Taupin has warned.”
“Protesters blocked roads in Beirut and other parts of Lebanon on Monday, pressing a wave of demonstrations against the ruling elite that have plunged the country into political turmoil at a time of acute economic crisis…
“Saad Hariri resigned as prime minister last week. There has been no sign of progress yet towards agreement on a new government.”
“In Baghdad’s Tahrir Square, Iraqi society has been turned upside down.
“Young men driving tuk-tuks, the three-wheeled vehicles driven and ridden in by the poor, have become heroes. Unpaid, they brave crowds of protesters, facing off against Iraqi security forces to rush the wounded to ambulances.”
“India’s main services index signaled a contraction for a second straight month, the weakest stretch since 2017, amid a prolonged economic slowdown.”
“More female farmers are committing suicide in the western Indian state of Maharashtra where a decades-long agrarian crisis has reportedly driven more than 30,000 farmers to end their lives…
“…the Indian government’s policies to withhold data about it might only be complicating the situation.”
“Business activity in Hong Kong’s private sector fell to its weakest in 21 years in October, weighed down by anti-government protests and softening global demand, according to an IHS Markit survey published on Tuesday…
“Demand from mainland China declined at the sharpest pace in the survey’s history – which started in July 1998 – while companies also cut back on purchasing and input inventories at the fastest clip since the series began.”
“China’s central bank cut the interest rate on its one-year medium-term lending facility (MLF) loans on Tuesday for the first time since early 2016, as policymakers work to prop up a slowing economy hit by weaker demand at home and abroad.”
“China will face another potential financial crisis in 2020 when local governments must pay-off over $283 billion in maturing municipal debt… the annual cost of Chinese municipal bond debt maturities has ballooned from $34 billion in 2017; to $118 billion in 2018; $183 billion in 2019; and is expected to top $283 billion in 2020, according to Bloomberg.”
“Thousands of Chileans took to the streets again yesterday to demand better social services, some clashing with police, as firebombs were thrown at officers and tear gas used on protesters.
“Demonstrators demanded an end to economic inequality in the county even as the government announced that weeks of demonstrations are hurting the country’s economic growth.”
“The leveraged loan market has doubled in size over the last ten years, overshadowing high-yield bonds as a source of financing for riskier businesses. With global growth slowing, and growth in the developed world widely acknowledged to have peaked, investors are beginning to pull back from the market. Many worry that the next recession could bring about a string of corporate defaults that hits these lenders hard.
“Analysts at Bank of America Merrill Lynch recently wrote of the US leveraged loan market, “we are seeing numerous new signs of tightening credit conditions…ranging from wide market bifurcation, to a prevalence of downgrades, rising distress, lower availability of capital for the lowest rated names”.”