Economy 23rd May 2019 Trade War Enters Uncharted Waters

“Enforcing whatever the two countries agree to with respect to Intellectual Property Right protections was always going to be the most difficult part of the trade negotiations. There are no easy ways to accomplish this goal without substantially changing behavior, but the U.S. seems to have chosen a path that is unlikely to work.

“Besides not being effective, the reason I am not as optimistic as I once was that the trade war will be successfully resolved in the short term is that the U.S. approach has also struck at a bedrock issue in China. Meanwhile, Trump’s determination to restore balance and fairness in the relationship between China and the U.S. is a bedrock issue with him. As a result, he is willing to take steps in dealing with China that no country or U.S. has ever contemplated.

“In this sense, the negotiators on both sides are truly between a rock and a hard place. It is going to take a very creative compromise to bring the talks to a successful resolution, and the world may have to wait some time for such an agreement to appear.”

https://www.forbes.com/sites/jackperkowski/2019/05/23/the-u-s-china-trade-war-enters-uncharted-waters/#44da4c20122f


“Panasonic has joined the growing list of companies to sever ties with Huawei by announcing that it will stop supplying some components to the Chinese technology conglomerate after a US ban over security concerns. The decision by the Japanese firm on Thursday sent Asia Pacific shares falling again and came a day after four major Japanese and British mobile carriers said they would delay releasing new Huawei handsets.”

https://www.theguardian.com/technology/2019/may/23/huawei-markets-slide-as-panasonic-joins-list-of-firms-cut-ties


“Recent trade war escalation showed how sensitive to adverse events are Chinese companies…

“…debt in China has enormously grown and we are concerned that over time China may not be able to deal with it, which will result in an extreme downturn.

“Such a situation will strongly affect the whole world because China’s share in global GDP is significant.”

https://seekingalpha.com/article/4265826-china-crushed-debt


“The world’s second-largest economy was already slowing before the US-China trade conflict erupted.

“DW explores how different sectors of the Chinese economy are affected, and how tariffs could exacerbate the slump.”

https://www.dw.com/en/chinas-slowdown-how-its-being-felt-across-the-country/g-48818080


“Chinese regulators are preparing to open up trading of bond futures to domestic banks, as the government seeks to increase hedging tools…”

https://www.ft.com/content/f888af02-7c88-11e9-81d2-f785092ab560


“Japanese manufacturing activity swung back into contraction in May as export orders fell at the fastest pace in four months, highlighting why policy makers and investors remain anxious about the growing economic impact of a bruising Sino-U.S. trade war…

““The re-escalation of US-China trade frictions has heightened concern among Japanese goods producers,” said Joe Hayes, economist at IHS Markit, which compiles the survey.”

https://www.reuters.com/article/us-japan-economy-pmi/japan-may-flash-pmi-snaps-back-into-contraction-as-sino-us-trade-war-escalates-idUSKCN1ST02B


“While tax hikes are rarely popular anywhere, in Japan increases in the national sales tax proved especially toxic, squelching economic growth and damaging political careers.

“Yet Prime Minister Shinzo Abe is planning to let it rise again in October, after two delays, despite a wobbly economy and escalating trade tensions.”

https://www.bloomberg.com/news/articles/2019-05-22/why-japan-is-risking-a-tax-hike-in-a-slow-economy-quicktake


“Euro zone business growth accelerated a touch this month but not as much as expected, bogged down by a deepening contraction in the bloc’s manufacturing industry which is increasingly affecting service firms, a survey showed.

“Last month, European Central Bank President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persists and Thursday’s survey is likely to add to the concerns of policymakers.”

https://www.reuters.com/article/us-eurozone-economy-pmi/euro-zone-may-business-growth-weaker-than-expected-pmi-idUSKCN1ST0RG


“German business confidence in May was the weakest in more than four years amid an escalation of global trade tensions that are weighing heavily on the economy.

“The drop in the Ifo index was bigger than forecast and takes the closely-watched gauge to its lowest since November 2014.”

https://www.bloomberg.com/news/articles/2019-05-23/german-economy-emerges-from-stagnation-as-consumers-step-up


“Theresa May is thought to be on the brink of resignation as she faces a growing cabinet revolt over her Brexit plan and humiliation for the Conservative Party in today’s European elections.

“The prime minister is expected to announce a departure plan on Friday after failing to quell a ministerial mutiny over her revised EU withdrawal agreement. Commons leader Andrea Leadsom, the most prominent Brexiteer in the cabinet, quit late on Wednesday and other ministers were expected to follow her out of the door.”

https://www.independent.co.uk/news/uk/politics/european-elections-live-brexit-party-theresa-may-resign-leadsom-latest-news-a8926426.html


“British Steel has collapsed, putting more than 4,000 jobs directly at risk and threatening a further 20,000 in the company’s supply chain. The company has been put into compulsory liquidation after talks broke down between the government and British Steel’s private equity owners Greybull Capital.”

https://www.independent.co.uk/news/business/news/british-steel-collapse-insolvency-administration-job-losses-scunthorpe-a8924821.html


“The Icelandic krona is continuing its slide against a basket of currencies midweek as the bankruptcy of a budget airline has triggered a recession, prompting the central bank to spring into action.

“The latest financial crisis comes roughly a decade since the island nation was on the brink of insolvency following the collapse of several major banks that contributed to the global catastrophe.”

https://www.earnforex.com/news/2019/05/22/icelandic-krona-crashes-as-wow-air-bankruptcy-triggers-recession/


“Turkey’s options to rescue itself from the spiral of a weakening currency and a painful economic downturn are becoming more and more limited, Reuters reported citing analysts.

“Should foreign investment run out and cash buffers become exhausted, Turkey may have few financial options left other than building large current account surpluses that may require a much deeper and longer domestic recession, Reuters said.”

https://ahvalnews.com/turkey-economy/turkeys-financial-options-may-be-running-out-reuters


“A four-year conflict between the Libyan central bank and rival branches is threatening to worsen the battle for the capital Tripoli, with at least 300 people dead and thousands displaced during weeks of fighting.

“It is feared the financial crisis will hinder efforts to reunify the divided banking system, fuelling prospects of a financial implosion and economic war alongside the military one.”

https://allafrica.com/stories/201905220299.html


“In January, Zimbabwean President Emmerson Mnangagwa announced a 150% jump in fuel prices, triggering widespread protests that led to the deaths of 17 people after a brutal military crackdown.

“The country is currently on “security alert” owing to growing public anger against Mnangagwa’s government, which seems to be at its wits-end about solving the economic meltdown.”

https://www.thezimbabwemail.com/political-violence-alert/zimbabwe-on-heightened-security-alert-as-economy-implodes/


“Federal Reserve officials trying to shore up their arsenal to defend the economy in the next U.S. recession received a warning about one approach they have been considering.

“Plans to hold more short-term bonds to prepare for a downturn could create risks of its own, Fed staff told policymakers, according to minutes from the Fed’s April 30-May 1 meeting that were released on Wednesday.”

https://www.reuters.com/article/us-usa-fed-balancesheet/fed-officials-get-a-warning-about-a-possible-approach-to-fight-the-next-recession-idUSKCN1SS2YB


“If the grounds for another financial crisis are brewing, it doesn’t take a lot of investigation to determine where they might lie.

“The epicentre of the last financial crisis was the implosion of junk bonds – the bundles of securitised sub-prime mortgages labelled as collateralised debt obligations, or CDOs.

“If there were to be another crisis, it wouldn’t be at all surprising if it started with a meltdown of junk bonds again – this time bundles of securitised sub-prime loans labelled as collateralised loan obligations, or CLOs.”

https://www.stuff.co.nz/business/world/112935911/the-three-letters-sparking-fears-of-another-global-financial-crisis


“Based on working with banks and bank regulators for three decades, what keeps me up at night now? 19 consecutive quarters of rising household debt! American households now hold mortgage, auto loan, student, and credit card debt of $13.7 trillion which is $1 trillion above the 2008 peak.

“This level of indebtedness is the equivalent of about 68% GDP as opposed to an equivalent of 86% in 2008. Yet, we are so indebted at every level, that is, municipal, national level, corporate, commercial real estate, and at a household level. The more money banks lend especially at this late stage in the credit cycle, the more they increase their operational risk exposure. They let go of their underwriting standards, and they ignore controls.”

https://www.forbes.com/sites/mayrarodriguezvalladares/2019/05/22/the-weakening-of-big-bank-regulations-under-trump-is-the-seed-for-the-next-financial-crisis/#105344174f4c


Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 22nd May 2019 US Corporate Debt to Amplify Next Recession

“The next recession, whenever it arrives, could be deepened by Corporate America’s debt-riddled balance sheet.

“Encouraged by insanely low interest rates, US businesses have taken on record amounts of debt that funded hiring, acquisitions and generous rewards to shareholders. That borrowing doesn’t seem to matter much now because the economy is strong, and companies are minting more than enough money to pay down debt.

“But the next recession will expose Corporate America’s debt problem, revealing that many businesses binged on too much debt. Those companies will need to rapidly deleverage by slashing jobs, shutting facilities and selling assets. Some will even go out of business…

“”A highly leveraged business sector could amplify any economic downturn as companies are forced to lay off workers and cut back on investments,” Federal Reserve Chairman Jerome Powell warned in a speech on Monday night.

“Those laid-off workers would then cut their own spending, creating a cascading effect through the rest of the economy. And investors that enabled the business borrowing will retrench, making it harder for other companies to get financing.

“”The pain that investors are going to feel will be quite enormous,” said Gayeski.”

https://edition.cnn.com/2019/05/21/investing/corporate-debt-recession-powell/index.html


“Brian Blackstone reports in the Journal that a remarkable government effort to conjure prosperity by distorting credit markets still isn’t working…

“He believes that because of massive entitlement promises plus huge debt, “the entire developed world is insolvent.””

https://www.wsj.com/articles/the-great-government-debt-bubble-11558471734?mod=hp_opin_pos1


“In the years after the financial crisis, banks were under orders from regulators to amass huge piles of capital to help guard against another downturn.

“Now, as regulatory requirements have eased, many banks are moving quickly to unload that excess capital, largely by repurchasing their own stock.”

https://www.americanbanker.com/news/stock-buybacks-are-surging-but-for-how-long


“The US auto industry has announced 19,802 in workforce reductions this year through April.

“That’s more than triple — up 207% — than the 6,451 jobs cuts announced during the same time last year, and the most for the first four months of a year since 101,036 cuts were announced through April of 2009, according to data provided by Challenger, Gray & Christmas.”

https://www.marketwatch.com/story/auto-industry-cutting-jobs-at-the-fastest-pace-since-the-financial-crisis-2019-05-21


“Venezuela’s ambassador to Italy has resigned his post, saying US sanctions have reduced him to penury and have made it impossible to keep running the diplomatic mission.

“Isaías Rodriguez lamented that his financial situation is now so dire that his wife has started selling off the designer clothes that were given to her “by her ex-husband”.”

https://www.telegraph.co.uk/news/2019/05/21/venezuelas-ambassador-italy-quits-post-saying-us-sanctions-have/


“The South Sudan government plans to close a number of its overseas embassies due to financial constraints.

“Mr Mawien Makol, the spokesman for the Foreign Affairs Ministry, told local media Juba is finding it difficult to manage most embassies abroad.”

https://www.theeastafrican.co.ke/news/ea/South-Sudan-embassies/4552908-5124538-ri7mmdz/index.html


“The [Nigerian] economy will eventually return to recession because of massive unproductive general spending. Many foreign investors have quietly left Nigeria in some cases relocating to Ghana where necessary.

“On the other hand, many local investors out of fear of the prolonged political instability and the growing high level of insecurity…”

https://punchng.com/another-recession/


“The Zimbabwe Energy Regulatory Authority (ZERA) has increased prices of fuel by between 46 and 49 percent with immediate effect, a situation that may result in steep increases of prices of basic commodities.

“In a statement, ZERA said the new prices are based on the interbank market rate set on Monday by the central bank with an intention of stopping galloping inflation fueled by the black money market.”

https://www.voazimbabwe.com/a/zimbabwe-hikes-fuel-prices-by-up-to-49-percent/4926301.html


“Turkey’s consumer confidence dropped to the lowest level on record in May, damping hopes for a sustainable economic recovery in the country….

“Consumer confidence in Turkey is now lower than it was at the height of a currency crisis last year and during the global financial crisis of 2008. Sentiment has worsened after the lira dropped by almost 13 percent against the dollar this year, curtailing spending power. It had lost almost one third of its value in 2018.”

https://ahvalnews.com/turkey-economy/turkish-consumer-confidence-dives-lowest-record


“Saudi Arabia’s Public Investment Fund (PIF) is attracting only tepid interest in plans for its latest multibillion-dollar debt sale, banking sources told the Reuters news agency. This suggests the kingdom may be losing its appeal for some lenders…

“”Banks had been made a lot of promises, on the equity side mostly, and what is happening is just sovereign borrowing,” one banker with an international lender told Reuters.”

https://www.aljazeera.com/news/2019/05/lenders-losing-appetite-saudi-debt-190521172113797.html


“He Qiang should be manning his convenience store, but today he’s collecting tiny green berries along the road and shooting them at birds with his slingshot.

“The 26-year-old is distracting himself from his worries. He spent all his savings — the equivalent of $35,000 — on a store that no longer has any customers…

“Assembly lines have shut down, workers have left, and Hechuan’s streets, shops and many residents’ pocketbooks are now empty.”

https://www.npr.org/2019/05/21/724946510/the-economy-is-slipping-china-s-slowdown-hits-former-boomtown


“Australian economic growth looks set to remain sluggish for some time yet, continuing the slowdown seen in the second half of last year.

“The Westpac-MI Leading Index, an indicator that uses a variety of local and international economic indicators to predict Australian economic growth looking three to nine months into the future, slumped to -0.47% in April, down from -0.13% in March.”

https://au.finance.yahoo.com/news/australias-economic-slowdown-could-entrenched-015934501.html


“The pound declined against its major counterparts in the European session on Tuesday, as U.K. cabinet meeting kicked-off amid deep divisions over whether the government should opt for no-deal Brexit, if Prime Minister Theresa May couldn’t pass her Withdrawal Agreement Bill through Parliament next month.”

https://forextv.com/forex-analysis/pound-falls-on-brexit-concerns/


Rather bleak.”

“That’s the global economy’s outlook, according to Laurence Boone, the chief economist of the Organization for European Cooperation and Development…

“Most countries can ill afford any additional drags on growth. The OECD already forecasts zero economic growth in Italy this year, the growth rate in Germany to halve from last year to 0.7%, and Japanese growth to slow to 0.7%.”

https://qz.com/1624585/the-us-china-trade-war-threatens-the-global-economy-oecd/


“Recent history suggests it’s a good time to take some chips off the table, but instead, bond traders are doing the opposite…

“Given the bond market’s track record over many years in accurately forecasting the economy and inflation, it’s hard to doubt traders in this area. Even so, it’s hard to justify current yields if a recession isn’t imminent.”

https://www.bloomberg.com/opinion/articles/2019-05-21/bond-market-hubris-is-getting-hard-to-explain


Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 21st May 2019 China Toughens its Trade War Rhetoric

Anyone eccentric enough to be following these daily economic updates – and bless you if you are – may be noticing that they are bleeding more and more across into the political and geopolitical arenas (also into the environmental arena but not today).

This is only to be expected as an ever expanding global population is competing for an ever-shrinking resource-base, making economic factors ever more politically sensitive. Those biophysical limits are really starting to chafe, resulting in more protectionism, nationalism and aggression.

Also, growing wage and wealth disparities, which are a hallmark of late-stage, energy-constrained civilisations, as ours is, are fuelling popular discontent, making national politics increasingly fractious.

“Chinese President Xi Jinping has sought to tap into the “Long March” spirit of endurance to rally the public as trade and technology tensions rise with the United States, observers said.

“In his first domestic trip since the escalation of the US-China trade war this month, Xi visited one of the country’s major rare earths mining and processing facilities in Ganzhou, Jiangxi province, state news agency Xinhua reported on Monday…

“…the president’s visit sent a strong message of China’s determination in the stand-off.

“China has toughened its rhetoric in recent weeks as Washington raised tariffs on thousands of Chinese exports and put China’s telecoms champion Huawei on an export-control list. There is also growing speculation in China that Beijing could consider banning the export of rare earths to hit back at the US.”

https://www.scmp.com/economy/china-economy/article/3010977/xi-jinping-visits-rare-earth-minerals-facility-amid-talk-use


“Expectations that $200 billion of foreign money would flow into China’s capital markets this year are looking nothing short of optimistic.”

https://www.bloomberg.com/news/articles/2019-05-20/yuan-slump-derails-big-year-of-foreign-buying-in-china-s-markets


“In China’s financial system, the bigger the role of the state, the cheaper the funding costs. As a rule.

“But in one corner of the country’s $13 trillion bond market, something different has happened.

“The highest yields in the 7.5 trillion yuan ($1.1 trillion) worth of debt sold by local government financing vehicles are found on the securities sold in regions where the public sector dominates the economy.”

https://www.bloomberg.com/news/articles/2019-05-20/china-s-debt-iceberg-shows-biggest-risk-in-state-dominated-areas


“A collapse of U.S.-China trade talks and hike in tariffs on Chinese goods would push the world economy toward recession and see the Federal Reserve cut U.S. interest rates back to zero within a year, analysts at Morgan Stanley said on Monday.”

https://www.reuters.com/article/us-usa-trade-china-recession/full-blown-trade-war-will-push-world-toward-recession-morgan-stanley-idUSKCN1SQ1R4


“…the Taiwanese government says May will bring a seventh straight month of contraction as slowing global tech demand continued to hurt the island’s trade-reliant economy. Orders in April dropped 3.7 percent from a year earlier…”

https://www.nasdaq.com/article/taiwan-export-orders-shrink-again-in-april-govt-sees-rebound-in-h2-20190520-00127


“Thailand’s economy grew at the slowest pace since 2014 in the first quarter as weaker global demand and trade tensions weighed on exports.

“Gross domestic product rose 2.8% from a year ago, down from a revised 3.6% in the fourth quarter, the National Economic and Social Development Council said on Tuesday.

“That’s the slowest pace since the end of 2014. The expansion was in line with the Bloomberg survey estimate of 2.8%.”

https://www.bloomberg.com/news/articles/2019-05-21/thailand-s-economic-growth-slows-as-exports-slump-on-weak-demand?utm_source=google&utm_medium=bd&cmpId=google


“Singapore’s economic growth in the first quarter of the year came in lower than officially estimated at 1.2 per cent – the slowest quarter growth in nearly a decade – as manufacturing shrank amid global trade tensions and an electronics slowdown…

“…[it was] the smallest annual expansion for any quarter since April-June 2009.”

https://www.straitstimes.com/business/economy/singapores-2019-growth-forecast-downgraded-to-15-25-after-economy-slows-to-12-in-q1


“Australia’s central bank will consider cutting interest rates next month, Governor Philip Lowe said on Tuesday as the resource-rich economy looked set to join some of its global counterparts in easing financial conditions to boost growth.

“Lowe also urged the country’s newly re-elected government to do its part by slashing income taxes and boosting spending, as inflation and wages growth lagged the central bank’s expectations.”

https://www.reuters.com/article/us-australia-economy-rba/australia-central-bank-signals-rate-cut-in-june-as-economic-growth-cools-idUSKCN1SR0DX


“Economists have cut their forecast for Brazil’s growth in 2019 and now expect a third year of meager economic recovery following the country’s deepest-ever recession.”

https://www.bloomberg.com/news/articles/2019-05-20/brazil-economists-slash-2019-growth-forecasts-for-twelfth-week


“Crude oil production in Venezuela declined to its lowest level in more than 16 years in April, and the recent freefall could accelerate further as US sanctions-related deadlines pass.

“The politically and economically beleaguered country’s crude output averaged just 830,000 B/D in April, its lowest mark since January 2003, according to data from the US Energy Information Administration.”

https://www.spe.org/en/jpt/jpt-article-detail/?art=5514


“Iran has accelerated the rate at which it’s enriching low-grade uranium four-fold, weeks after threatening to gradually scale back its commitments under a 2015 deal meant to prevent it from developing a nuclear bomb.”

https://www.bloomberg.com/news/articles/2019-05-20/iran-quadruples-rate-of-production-of-enriched-uranium-tasnim


“The EU Commission has confirmed that it will be making no changes to the Brexit withdrawal agreement following a claim by Theresa May that MPs would be voting on a new, better deal.

“A spokesperson told reporters in Brussels that collapsed talks between the government and Labour were “a Westminster process” and that there was “nothing that we can do at this stage”.

https://www.independent.co.uk/news/uk/politics/brexit-news-latest-theresa-may-deal-vote-eu-improvements-a8922076.html


“Fake Russian collusion in Austria led to the demise of the nation’s government last weekend, and could result in criminal charges for a top far-right leader. The scandal has rocked Austria to its core, providing a blow to the growing clout of nationalist, anti-immigrant parties in Europe. While viewed as a local affair by some, it’s a political crisis that could potentially span the continent.”

https://www.vox.com/2019/5/20/18632455/austria-strache-video-vice-chancellor


“In the wake of the economic crisis, Paul Volcker called automated teller machines the last financial innovation that improved society.

“A decade later, their popularity is slipping.

“The number of ATMs around the world fell for the first time last year as banks closed branches and redirected resources toward digital payments, consulting firm RBR said in a study released Monday.”

https://www.bloomberg.com/news/articles/2019-05-20/atms-once-the-future-of-banking-starting-to-become-more-scarce


Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 20th May 2019 Trade War Risks Tanking Global Economy

“Heightened trade tensions between the United States and China have raised the risk of a recession next year if the dispute between the world’s two largest economies is prolonged and escalates further, according to economists and portfolio managers.

“Just over two weeks ago, Washington and Beijing seemed poised to reach an agreement to end a trade war that has hurt American businesses that rely on products made in China, increased costs for US companies and consumers, and contributed to an economic slowdown in China.

“But the dispute has escalated recently as the US raised tariffs to 25 per cent on nearly US$200 billion of goods from China on May 10 and is preparing to add levies to all Chinese-made products later this year. That has prompted Beijing to retaliate with its own tariffs, effective from June 1.

“The whiplash-inducing reversal in tone has unnerved investors and increased fears that an economic downturn is on the horizon more than a decade on from the global financial crisis.”

https://www.scmp.com/business/companies/article/3010878/will-escalating-us-china-trade-war-and-its-catastrophic


“What’s unsettling financial markets, allies and adversaries most is an inability to properly calculate and thus “bake in” this degree of geopolitical risk from a U.S. president who prides himself on his disruptive tactics.

“No one quite knows what unifying strategy binds these situations – nor what President Trump’s end game might be on each.”

https://www.cnbc.com/2019/05/17/trumps-juggling-act-puts-china-iran-venezuela-and-north-korea-in-play.html


“The yuan just hit its lowest level against the dollar since November 2018. That could make the trade war between China and the United States even more complicated. One US dollar bought 6.92 yuan on Friday.

“The Chinese currency has weakened by almost 2.7% this month and is now uncomfortably close to the symbolically important level of 7 to the dollar, last breached during the 2008 financial crisis.”

https://edition.cnn.com/2019/05/19/investing/stocks-week-ahead/index.html


“…many pointed to the economy, not the possible outbreak of war, as Iran’s major concern.

“Iran’s rial currency traded at 32,000 to $1 at the time of the 2015 nuclear deal. Now it is at 148,000, and many have seen their life’s savings wiped out.

“Nationwide, the unemployment rate is 12 percent. For youth it’s even worse, with a quarter of all young people unemployed, according to Iran’s statistic center.”

https://www.egyptindependent.com/for-iranians-economic-crisis-looms-larger-than-us-tensions/


“A set of deep-rooted economic challenges awaits India’s new government after election results are announced May 23.”

https://www.bloomberg.com/news/articles/2019-05-19/winner-in-india-s-election-gets-an-economy-riddled-with-problems


“There is not a single action put forward by this government that does not reflect capitalist interests.

“For instance, Bolsonaro’s latest decree authorizes parents to let their underage children learn how to shoot firearms without judicial permission.”

https://jacobinmag.com/2019/05/jair-bolsonaro-brazil-austerity-education-disorganization


““All of the most important components of GDP are negative,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center. “The economy has already peaked out, so we are likely to have a mild recession,” he said. “No one would object to delaying the sales tax hike.”

“The headline GDP expansion was caused largely by a 4.6% slump in imports, the biggest drop in a decade and more than a 2.4% fall in exports.”

https://www.reuters.com/article/us-japan-economy-gdp/weak-spending-overshadows-japans-surprise-first-quarter-economic-expansion-idUSKCN1SQ01T


“A senior adviser to the German government fears another European financial crisis could be brewing.

“The German government expects expansion of just 0.5% this year, down from 1.8% just a few months ago as manufacturing struggles with a number of challenges…

“The spending and tax spending plans of the Italian government there means its deficit and debt are ballooning, and set to breach rules set by the European Commission, further undermining the country’s financial credibility.”

https://www.bbc.co.uk/news/business-48258720


“As of 2017, more people have been forced by violence and conflict to flee their homes than live in the U.K. or France. Why it matters: That’s upwards of 60 million people — a global nation of refugees. If all of these asylum-seekers, internally displaced people and refugees were a country, they’d be the 21st most populous nation in the world, according to UNHCR estimates. More than half of refugees are under the age of 18.

“The crisis is the worst its been since World War II, and it’s not getting better.”

https://www.axios.com/refugee-population-world-9d7e786e-3773-4d17-ac0b-5baa3bee031e.html


Read the previous ‘Economy’ page here and visit my Patreon page here.

Economy 17th May 2019 The Global Property Boom is Over

“The global property boom is over as slowing growth, high prices and rising risks point to the end of the long recovery from the financial crisis, investment bank UBS has warned.

“Rock-bottom interest rates have kept prices rising but the result is that buyers are stretched and are facing record low returns on investment in prime property.

“Prices have run out of room to grow in many parts of the world in commercial and residential property, and the market cycle is thought to have peaked around nine months ago, the bank warned.”

https://www.telegraph.co.uk/business/2019/05/16/global-property-boom-house-prices-hit-breaking-point/


“Americans now pay their banks an average 17% interest on credit cards — the highest level recorded by the Fed.

“The rising monthly cost for U.S. consumers may be one reason they’re spending less, as April’s weak retail sales laid out. The combination doesn’t bode well for GDP growth.”

https://www.cnbc.com/2019/05/16/credit-card-rates-are-now-at-their-highest-level-in-25-years-and-may-weigh-on-the-economy.html


“The U.S. economy grew at an annual rate of 3.2% in the first quarter of 2019—much faster than many analysts had expected. However, as I noted when the data were first released, the strong headline figure was attributable to massive inventory accumulation by businesses and sharp cuts in spending on imports.

“The economy grew at just an annual rate of 1.5% when the effects of inventories and net trade are excluded.”

https://www.barrons.com/articles/the-u-s-economy-looks-like-its-slowing-down-after-all-51558019383


“Fallout from the power struggle in Venezuela can be felt far beyond its borders, perhaps nowhere more than in Cuba.

“The U.S. has said Havana’s support for strongman Nicolás Maduro is helping him stay in power in Caracas; as punishment, the Trump Administration has imposed sanctions on Cuba.”

http://time.com/5590217/rations-in-cuba-venezuela-crisis/


“The US claims to have multiple images of Iranian commercial vessels in the Persian Gulf that it believes are carrying missiles and other munitions, according to a US official with knowledge of the situation.

“CNN has not reviewed the intelligence that has led to the US assessment.

“The US government has provided no proof the ships are carrying hidden missiles and other munitions.”

https://edition.cnn.com/2019/05/16/politics/us-claims-iran-ships/index.html


“China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat to escalate tariffs, while the government said stimulus will be stepped up to buttress the domestic economy.”

https://www.bloomberg.com/news/articles/2019-05-17/china-not-interested-in-talking-with-u-s-for-now-state-media


“Recent flare up in trade tensions between the US and China led to outflows of more than US$2.5 billion in Chinese equities last week Inflows into global bond funds has been accelerating at their fastest pace since 2002.”

https://www.scmp.com/business/china-business/article/3010562/where-has-all-money-gone-after-trade-war-triggers-capital


“Since commodity prices are informed by marginal costs subject to intermittent deflationary or inflationary disruptive forces, this expected maturing of the Chinese economy is troubling. In 2017-18, when China’s perceived economic adjustment was clear for all to see, commodities ended up as the worst performing asset class.”

https://www.forbes.com/sites/gauravsharma/2019/05/16/chinas-muted-economy-is-not-nurturing-another-commodities-super-cycle/#19ade7803799


“Singapore’s non-oil domestic exports fell more than expected in April from a year ago, hurt by fewer shipments to most major trading partners and a plunge in pharmaceutical sales, official data showed on Friday.

“Exports fell 10% in April year-on-year, data from the trade agency Enterprise Singapore showed.”

https://in.reuters.com/article/singapore-economy-exports/singapore-april-exports-slump-10-percent-electronics-pharmaceuticals-contract-idINKCN1SN0DG


“Japan will be post GDP growth figures for the first quarter on Monday (Sunday, 23:50 GMT).

“But with trade uncertainty still weighing heavily on export-dependent Japanese businesses, the data is unlikely to bring music to policymakers’ ears as the world’s third largest economy is expected to have contracted during the period.”

https://www.xm.com/japans-economy-likely-contracted-again-in-q1-what-next-for-the-boj-forex-news-preview-101812


“Talks between the Government and Labour aimed at agreeing a joint approach to Brexit are set to break up without a deal, PoliticsHome understands.

“The negotiations, which have been going on since the end of March, could break down as early as Friday…

“Numerous meetings have taken place between officials and senior frontbenchers on both sides over the past six weeks, but major differences remain.”

https://www.politicshome.com/news/uk/foreign-affairs/brexit/news/103932/brexit-talks-between-government-and-labour-set-collapse


“Euro zone banks are turning away from cross-border activity, putting at risk the bloc’s banking union and raising the risk of dangerous fragmentation, European Central Bank Vice President Luis de Guindos said on Thursday.

“With national rules hindering cross-border consolidation, the euro zone bank sector remains highly fragmented, leaving lenders unable to compete with bigger and more efficient global peers.”

https://uk.reuters.com/article/uk-eurozone-banks-ecb/euro-zone-banking-at-risk-of-dangerous-fragmentation-ecb-warns-idUKKCN1SM1L6


“If a stronger currency is supposed to lead to lower inflation by making imports cheaper and making domestic producers absorb the costs associated with a stronger currency, why is that not happening with the Euro.

“As the EUR advances on the Yuan we see inflation rising and not falling. Why?

“The answer he gave to the conundrum is that there is a bigger influence on the Euro than the currency strength, namely oil.”

https://www.forexlive.com/news/!/eurozone-inflation-and-its-correlation-with-oil-prices-20190517


“Heavy reliance on debt financing and slow economic growth are leading to the creation of debt bubbles which risk destabilizing the entire financial system should a major shock occur, bond bankers and investors warned at a conference on Thursday.

“Leverage in the system has increased some 50%-60% since the financial crisis a decade ago, with debt now worth some 230% of economic output globally according to IMF estimates, said Frank Czichowski, treasurer at KfW.

There is no banking system in the world that can cope with the flood coming out of this,” he said.”

https://uk.reuters.com/article/us-capital-markets-bonds/debt-bubbles-could-burst-as-economies-slow-threatening-stability-bankers-warn-idUKKCN1SM2GU


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Economy 15th May 2019 China Slows Sharply Even Before New Tariffs

“China’s economy looked to have had its growth slow sharply in April, the last month before new US trade war tariffs take effect, with both industrial production and retail sales growth posting significant declines.

“The big picture to be gleaned from Wednesday’s data dump is that China’s economy is losing the momentum it gained in the first quarter, at a time when it is being sucked into an ever-intensifying trade war with the US.

“Over the past week, the world’s two largest economies have exchanged tit-for-tat tariffs, as it looked like chances of a near-term trade deal – which had appeared to be growing only two weeks ago – have dwindled.

“The weak data are also likely to rekindle the debate over whether the Chinese government needs to enact more fiscal and monetary stimulus to prop up the economy.”

https://www.scmp.com/economy/china-economy/article/3010245/china-economy-slows-sharply-april-even-higher-us-trade


“Regulators in Hong Kong are increasingly nervous about the accelerating pace of capital outflows from China after the collapse of trade talks, fearing a wave of financial turbulence that could jeopardize the hub’s longstanding dollar peg.

“The Hong Kong dollar has fallen to a 33-year low and is testing the limits of the enclave’s currency board regime.

“The Hong Kong Monetary Authority has been forced to intervene twice over the last week.”

https://www.telegraph.co.uk/business/2019/05/14/hong-kong-sounds-alarm-chinese-capital-flight/


“Indonesia posted its widest monthly trade deficit in history in April as exports slumped…

“April exports were down 13.10% on an annual basis at $12.60 billion, led by a drop in shipments of refined oil and natural gas products.

“The poll had estimated a 7.15% contraction. Exports of Indonesia’s main commodities, coal and palm oil, also sank.”

https://www.nasdaq.com/article/indonesia-posts-biggest-trade-deficit-ever-in-april-20190515-00059


“Iran has officially stopped some commitments under a 2015 nuclear deal with world powers following an order from its national security council, ISNA news agency reported… An official in the country’s atomic energy body told ISNA that Iran has no limit from now for the production of enriched uranium and heavy water…

“Iran has warned that unless the world powers protect its economy from US sanctions within 60 days, it would start enriching uranium at a higher level.”

https://www.aljazeera.com/news/2019/05/iran-halts-commitments-2015-nuclear-deal-190515060220386.html


“President Michel Aoun urged the Lebanese on Tuesday to end protests and make sacrifices to rescue the country from financial crisis as ministers debate a draft state budget expected to include spending cuts.

“Fears that the budget would include wage or pension cuts have sparked protests by public sector workers, pointing to the minefield that Lebanon’s main parties face.”

https://uk.reuters.com/article/lebanon-aoun/lebanons-president-urges-sacrifice-as-budget-cuts-debated-idUKL5N22Q80T


“The embattled South African state power utility’s debt burden, described by Goldman Sachs Group Inc. as the biggest threat to the nation’s economy, has burgeoned, compounding the difficulty the government faces in formulating a turnaround plan…

“…its Chief Executive Officer Phakamani Hadebe last month put total debt at about 450 billion rand.”

https://www.bloomberg.com/news/articles/2019-05-15/eskom-s-turnaround-imperiled-as-debt-approaches-35-billion


“Brazil’s economic recovery stalled during the first few months of the year, which could result in a contraction in the gross domestic product (GDP) in the first quarter, the Central Bank of Brazil said Tuesday…

“During the first few months of the year, the cooling down of the economy which had been observed at the end of 2018 continued, said the central bank.”

http://www.xinhuanet.com/english/2019-05/15/c_138059724.htm


“Argentina’s hope of fast-tracking production from its vast Vaca Muerta shale play, the world’s second largest by output, could be delayed as the country adapts to recession.

“Last year, Argentina was forced to seek a $57bn bailout package from the IMF — the largest-ever sum issued by the fund — after the peso lost over 60pc of its value and inflation surged.”

https://www.petroleum-economist.com/articles/upstream/exploration-production/2019/economic-crisis-threatens-to-stall-vaca-muerta


“Mexican President Andres Manuel Lopez Obrador took office in December vowing to revive state-owned energy company Pemex and put the brakes on foreign investment to give the public a bigger cut of the country’s oil wealth. The leftist oil nationalist’s ambitions include building a new $8 billion refinery, refurbishing existing refineries and reversing a steady decline in crude production.

“The problem is that such expensive plans – for the world’s most indebted oil company – have alarmed credit rating agencies, which are threatening to downgrade Pemex bonds to “junk” status. A downgrade could cripple the president’s bold energy agenda, along with his plans to use new oil revenue to help finance social welfare programs. It could also imperil Mexico’s sovereign creditworthiness.”

https://uk.reuters.com/article/us-mexico-pemex-insight/mexicos-rising-oil-nationalism-faces-debt-rating-crisis-idUKKCN1SK1TE


“Lenders extended less new credit for people to buy homes and cars in the first three months of the year, according to data that raises questions about how much U.S. consumers can contribute to economic growth this year.

“New mortgage and auto loan balances both declined from the fourth quarter of 2018, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit.”

https://uk.reuters.com/article/usa-economy-debt/new-us-mortgage-and-auto-loan-balances-fall-in-1st-quarter-idUKL2N22Q0OC


“The current narrative is that the US economy is buzzing. No major indicator is flashing red. However, by looking at major indicators in aggregate a clear peak can be made out in October 2018 and we are on a downward trend.”

https://seekingalpha.com/article/4263782-economic-indicators-show-declines-ahead


“The US economy began its expansion in June of 2009 and will mark its ten-year anniversary at the end of June 2019. At that point, it will be the longest expansion in US history…

The new unknown: The tax cuts aren’t built for downturns.”

https://www.forbes.com/sites/leonlabrecque/2019/05/14/five-reasons-the-next-recession-will-be-different/#2010c5aa4e04


“The economy could suffer as bank regulators forget lessons from the 2007-2009 financial crisis, the Government Accountability Office warned in a new report today… Bank regulators could be lulled into complacency and not uncover dangers masked by years of a strong economy, asserted the report from the agency, the investigative arm of Congress.”

https://www.forbes.com/sites/tedknutson/2019/05/14/economy-could-suffer-as-bank-regulators-forget-lessons-from-the-financial-crisis-gao-warns/#8a979ef186c2


“Anti-immigrant parties, often with roots in fascist and neo-Nazi organisations, have encroached on the mainstream in pretty much every European country.

“Ultra-nationalists are the main opposition in Germany; in Austria they are in coalition government.

“Democracy in Poland and Hungary has been twisted out of shape by authoritarian regimes that suffocate political opposition, vilify dissent and foment racism, Islamophobia, homophobia and antisemitism.”

https://www.theguardian.com/commentisfree/2019/may/15/brexit-nationalism-politicians-liberal-europe


“Deputy Prime Minister Matteo Salvini sent ripples through financial markets on Tuesday, saying Italy could be ready to break European Union fiscal rules, on the same day his coalition partner called on him to stop “fanning the flames” with critical comments about the government.

““If we need to break some limits, like the 3% or the 130-140%, we’ll go ahead,” League party chief Salvini told reporters in Verona…”

https://www.bloomberg.com/news/articles/2019-05-14/salvini-says-italy-could-break-eu-debt-rules-to-boost-employment


“William White, former chief economist of the Bank for International Settlements, presciently warned of financial risks before the 2007-09 financial crisis.

“Last year, he warned of another crisis, pointing to the continuing rise in non-financial sector debt, especially of governments in high-income countries…”

https://www.ft.com/content/f09cda30-7598-11e9-bbad-7c18c0ea0201


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