21st August 2019 Today’s Round-Up of Economic News

“After 14 months of bickering, Italy’s government collapsed on Tuesday, plunging a key European nation already hobbled by financial fragility and political chaos into a renewed period of crisis and uncertainty…

“…the country’s financial situation has darkened.

“Growth has hovered around zero percent, and the government proved ineffectual in the face of dizzying youth unemployment and a public debt of more than 2 trillion euros — about $2.2 trillion — that represents more than 130 percent of Italy’s annual economic output.”

https://www.nytimes.com/2019/08/20/world/europe/italy-pm-giuseppe-conte-resign.html


“…it feels as if decisions not yet taken this autumn [vis-a-vis Brexit] are shrouded in a mist of inevitability – the accretion of a million mistakes already made.

“Looking back, maybe historians will judge that the point of no return, the laying of the rails, happened long before the summer of 2019.”

https://www.theguardian.com/commentisfree/2019/aug/21/1914-brexit-calamity-inevitable-remainers


“Germany’s tentative steps toward a fiscal stimulus program to revive its flagging economy are a signal that the nation could be in for an unusually severe slump.”

https://www.bloomberg.com/news/articles/2019-08-20/look-to-2009-as-precedent-for-modern-era-german-fiscal-stimulus


“In Brazil and Mexico, the region’s biggest economies, weak budgetary positions are a fiscal straightjacket for governments.

“Meanwhile, central banks are wary of cutting interest rates too far for fear of sending their currencies into a tailspin – hurting foreign investment and stoking inflation.”

https://uk.reuters.com/article/uk-latam-economics-recession-analysis/latin-america-lacks-ammunition-to-fight-global-economic-slowdown-idUKKCN1VA1YJ?il=0


“Life just got a whole lot tougher for Argentina’s Mauricio Macri a week after his shock primary-election defeat sent markets into a tailspin.

“The embattled president is suddenly grappling with the resignation of his economy minister and a double downgrade to the nation’s debt. Meanwhile, his opponent Alberto Fernandez, now favourite to win the presidency on October 27, is calling on Macri to renegotiate the terms of a record $56 billion (R855bn) credit line with the International Monetary Fund.”

https://www.iol.co.za/business-report/international/president-macris-problems-mount-fast-as-argentina-faces-fresh-turmoil-from-debt-downgrades-30997137


“Even on a continent filled with countries that have a history of violent conflicts, the recent displacement of people from Venezuela is the largest that Latin America has ever seen.

“Mass migration from the deeply troubled South American society is being caused by an unprecedented economic and humanitarian crisis.”

https://www.aljazeera.com/ajimpact/state-venezuelan-displacement-starvation-multiply-190819211122417.html


“As the global economy threatens to slow down, central banks around the world have been slashing interest rates.

“But that alone may not be enough to boost growth, especially in some of Asia’s emerging markets, economists say.”

https://www.cnbc.com/2019/08/21/interest-rate-cuts-in-asias-emerging-markets-may-not-be-enough.html


“India is now in the third growth recession since 2008. Economic growth has already slowed sequentially for four consecutive quarters. It is very likely that economic growth in the quarter ended 30 June will be slower than in the quarter ended 31 March.”

https://www.livemint.com/opinion/columns/opinion-is-india-headed-for-its-worst-growth-recession-in-a-decade-1566320477197.html


“A downturn in the number of students from China could be “catastrophic” for some Australian universities and may force taxpayers to prop up the budgets of some of the nation’s oldest sandstone institutions… “The risks are primarily financial,” Associate Professor Babones said.”

https://www.abc.net.au/news/2019-08-21/australian-universities-too-dependent-on-chinese-students-report/11427272


“Today, the trade conflict, deflation in a zero-yield world and why Fed insouciance is pushing the global economy to the brink: with each passing month of trade conflict, the world economy slips closer to stall speed.

“A partial cease-fire between the US and China – or the US and Europe – is not in itself enough to keep recession at bay.”

https://www.telegraph.co.uk/business/2019/08/20/little-late-prevent-global-recession-enter-pre-slump-window/


“The planet is facing a mounting and “invisible” water pollution crisis, according to a hard-hitting World Bank report, which claims the issue is responsible for a one-third reduction in potential economic growth in the most heavily affected areas.

“While much international attention has been focused on the question of water quantity, not least as the planet warms, a secondary impact of the climate emergency has been its effect on water quality.”

https://www.theguardian.com/global-development/2019/aug/20/whats-in-our-water-report-warns-of-growing-invisible-crisis-of-pollution


“Climate change will exact a toll on global economic output as higher temperatures hamstring industries from farming to manufacturing, according to a new study published by the National Bureau of Economic Research.

“Record-breaking heat across the globe made headlines throughout July, and now researchers say a persistent increase in average global temperature by 0.04 degrees Celsius per year, barring major policy breakthroughs, is set to reduce world real GDP per capita by 7.22% by 2100.”

Real GDP per capita in 2100 will in fact be reduced by 100%, I would suggest.

https://www.cnbc.com/2019/08/20/climate-change-to-slow-global-economic-growth-new-study-finds.html


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

20th August 2019 Today’s Round-Up of Economic News

“There’s been a lot of talk about inverted yield curves over the past few days.

“Specifically, last week’s inversion of the two-year and 10-year U.S. Treasury notes has raised the spectre of recession, sending tremors through U.S. stock markets.

“Financial market analysts are poring over their historical data for clues as to how likely and how severe a global contraction might be.

“Those who follow the copper market, however, will know that “Doctor Copper” with his honorary degree in economics got there first.

“London Metal Exchange (LME) three-month copper has slumped from above $6,600 per tonne in April to a current $5,800.

“Global economic weakness is being led by the manufacturing sector with activity contracting or slowing just about everywhere. That includes China, the powerhouse of industrial metals demand…

“The financial part of the copper market is betting there’s worse to come…”

https://www.reuters.com/article/metals-copper-ahome/rpt-column-chinese-investors-hold-key-as-global-funds-turn-super-bearish-on-copper-andy-home-idUSL5N25F3EM


“The US central bank should consider cutting interest rates by one percentage point and introduce “some quantitative easing” stimulus measures, president Donald Trump has said…

“The remarks came hours after the president said the US economy is not falling into a recession.

“The economy is doing “tremendously well”, he said.”

https://www.bbc.co.uk/news/business-49393198


“Stocks tanked last week amid signs of a worsening slowdown in Germany and China, and bond investors flashed the clearest signal yet that the U.S. is courting a self-inflicted recession.

“Hopefully these cries of alarm from financial markets will cause President Trump and his advisers to stop and think. If not, steel yourself for worse to come.”

https://www.bloomberg.com/opinion/articles/2019-08-19/trump-recession-steel-yourself-for-a-trade-war-slump


“The US economy appears poised to enter a recession within the next two years, a new survey out Monday found. More than 70% of economists surveyed by the National Association for Business Economics said they think a recession will occur before the end of 2021.”

https://markets.businessinsider.com/news/stocks/next-recession-trump-survey-shows-most-economists-predict-downturn-2021-2019-8-1028456445


“RV shipments have come in below 2018 levels during each month of 2019 thus far, according to data from the RV Industry Association, totaling a 20% drop compared to last year, and experts say the decline could be a harbinger of more damning economic data to follow.

“”The RV industry is better at calling recessions than economists are…””

https://www.businessinsider.com/rv-sales-slump-recession-sign-trumps-trade-war-not-helping-2019-8?r=US&IR=T


“After years pouring funds into the shale boom, bond buyers are getting increasingly selective as defaults rise and many explorers continue to burn more cash than they make.

“While Exxon Mobil Corp. and Occidental Petroleum Corp. have recently sold a combined $20 billion of investment-grade debt, junk rated issuers are getting a far different market reception.”

https://www.bloomberg.com/news/articles/2019-08-19/shale-bond-buyers-get-picky-as-cash-burning-producers-default


“A government report on Operation Yellowhammer was leaked on Sunday, revealing the probable consequences of the UK leaving the EU without a withdrawal agreement, which is due to happen on 31 October.

“Here are the key points…”

https://www.theguardian.com/politics/2019/aug/18/no-deal-brexit-key-points-of-operation-yellowhammer-report


“UK households have cut back on big purchases such as holidays as fears of a possible recession continue to loom, a survey suggests. Confidence among UK households has fallen to its lowest in three months, according to the latest IHS Markit household finance index, dropping to 43.7 in August from 44.3 [below 50 denotes contraction] the previous month.”

https://www.theguardian.com/business/2019/aug/19/uk-households-cut-big-ticket-spending-on-recession-brexit-fears


“Europe’s largest economy Germany could be in the middle of a recession, its central bank has said, pointing to persistent weakness in industry.

“German GDP dropped 0.1 per cent in the second quarter as demand for its exports was sapped by a global slowdown, as well as by stockpiling ahead of the original Brexit deadline in March.”

https://www.independent.co.uk/news/business/news/germany-recession-economy-euro-zone-bundesbank-a9070271.html


“Deutsche’s push [for more business] also comes as Germany, which is Europe’s biggest economy, risks sliding into recession for the first time since 2013 after years of punishingly low interest rates.

“On Friday, shares in Deutsche Bank hit a record low below 6 euros. In 2007, before the global financial crisis took hold, the shares peaked at above 90 euros.”

https://www.euronews.com/2019/08/20/humbled-deutsche-bank-faces-battle-in-its-own-backyard


“It’s been a decade since the global financial crisis, and despite years of zero or even negative interest rates and trillions of dollars pumped into the world’s financial system through bond and other asset purchases, central banks are now talking about having to double down.

“That’s even after the collective balance-sheet assets of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England have expanded to 35.3% of their countries’ total GDP from about 10% in 2008, according to data compiled by Bloomberg.”

https://www.bloomberg.com/opinion/articles/2019-08-19/last-thing-the-world-s-banks-need-is-lower-rates


China attempting the delicate balancing act of lowering rates without weakening its currency:

“China lowered its lending reference rate through a new market-oriented pricing mechanism on Tuesday, providing a modest easing of monetary conditions to help support the world’s second largest economy.”

https://www.scmp.com/economy/china-economy/article/3023508/china-lowers-interest-rate-part-market-oriented-reform-amid


“Former RBI Governor Raghuram Rajan has called slowdown in the economy “very worrisome” and said the government needs to fix the immediate problems in power and non-bank financial sectors and come out with a new set of reforms to energise private sector to invest.”

https://www.livemint.com/news/india/economic-slowdown-very-worrisome-new-set-of-reforms-needed-raghuram-rajan-1566215218863.html


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

19th August 2019 Today’s Round-Up of Economic News

“Every year the Federal Reserve Bank of Kansas City hosts a symposium in the Grand Teton resort of Jackson Hole. Some years, guests have little to do but chew the fat and listen to distinguished speakers explain points of economic importance. Sometimes, though, the conclave in Wyoming takes place with a crisis looming. One such year was 2008. This year is shaping up to be another…

“…as things stand the question is whether the global economy is heading for a slowdown or a recession.

“On average, there has been one serious downturn per decade since the early 1970s. One is due.”

https://www.theguardian.com/business/2019/aug/17/global-markets-worried-good-reason-be-so-bond-values


“The weirdness in financial markets at the moment seems boundless.

“In the past two weeks the proliferation of negative-yielding bonds has erupted — 30 per cent of the global, tradeable bond universe is being sold with a guaranteed loss attached to the coupon.”

https://www.abc.net.au/news/2019-08-18/a-third-of-global-bonds-17-trillion-dollars-have-negative-yields/11420860


“Donald Trump and his chief trade advisers insisted on Sunday the US is not facing a recession which markets appear to fear and which could prove costly at the polls next year.

““I don’t see a recession,” Trump said, preparing to fly to Washington. “We’re doing tremendously well. Our consumers are tremendously rich. They’re loaded up with money. Walmart is through the roof. We’re not going to have a recession – the world is in a recession right now.””

https://www.theguardian.com/business/2019/aug/18/us-economy-2020-trump-advisers-navarro-kudlow-recession


“Investors are anticipating a fresh wave of stimulus measures to tackle flagging growth, as the White House said it was considering a new round of tax cuts to boost the economy.”

https://www.ft.com/content/c0c136f8-c1c4-11e9-a8e9-296ca66511c9


“The problem is, central bank policy isn’t what’s holding back the global economy, and more monetary stimulus won’t help, according to Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The Fed doesn’t have the cure for what ails us, just as the [European Central Bank] and the [Bank of Japan] don’t at this point,” he told me.

“Cheap borrowing really isn’t the problem.

“”There’s no business investment that’s being held back because of where rates are,” Boockvar said.”

https://edition.cnn.com/2019/08/18/investing/stocks-week-ahead/index.html


““Leverage in Europe is low and it could stay that way — even though many companies are able to issue debt with negative or record-low yields,” said Mahesh Bhimalingam, a credit strategist at Bloomberg Intelligence.

““It’s hard to see the appeal of loading up on debt to make an investment when the potential return on that investment looks highly uncertain, given the outlook in Europe.””

https://finance.yahoo.com/news/negative-yields-drug-europe-just-040100522.html


“The failure of Germany and France to amend rules related to the treatment of some over-the-counter derivatives contracts ahead of the UK’s exit from the European Union could cause unnecessary stress to the European financial system, according to Mark Carney, governor of the Bank of England.

“Carney calls on European lawmakers to address the matter before October 31.”

https://www.centralbanking.com/central-banks/financial-stability/fmi/4357021/carney-warns-germany-and-france-of-brexit-derivatives-cliff-edge


“Germany’s pain has been central to bond market convulsions around the world. Very disappointing data on German economic growth has acted as the most direct catalyst for the buying of long-dated U.S. Treasuries that briefly caused an inversion of the U.S. yield curve, with the 10-year yields falling below two-year yields for the first time in 12 years…

“A further problem for Germany, which can become a vicious circle, is its banking system.”

https://www.bloomberg.com/news/newsletters/2019-08-19/germany-s-bond-market-is-a-problem-for-the-world?srnd=styt


“Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) of extra spending in an economic crisis, putting a number on a possible fiscal stimulus for the first time.”

https://www.bloomberg.com/news/articles/2019-08-18/germany-says-it-could-spend-extra-55-billion-if-crisis-hits


“Thailand’s economy grew at the slowest pace in almost five years in the second quarter as exports and tourism were buffeted by U.S.-China trade tensions and a strong local currency.”

https://www.bloomberg.com/news/articles/2019-08-19/thailand-2q-gdp-growth-weakest-since-2014-on-trade-war-baht


“South Korea’s household debt extended by deposit banks and non-banking savings institutions increased 15.40 trillion won (US$12.73 billion) in the second quarter of this year from a year earlier.

“The balance of household debt is estimated at more than 1,467.30 trillion won (US$1.21 trillion) as of the end of June.”

http://www.businesskorea.co.kr/news/articleView.html?idxno=35027


“Japanese exports fell for an eighth straight month in July, weighed down by shipments of auto parts and semiconductors, as slowing economic growth and trade battles raise fears of a global recession.”

https://www.bloomberg.com/news/articles/2019-08-18/japan-exports-decline-again-as-global-economic-outlook-darkens


“Despite outrage from the banks, president Cyril Ramaphosa signed the Credit Amendment Bill this week.

“While the details of how it will be implemented still need to be finalised, it is estimated that some 9.5 million South Africans may have their debts written off completely.”

https://www.businessinsider.co.za/how-to-write-off-debt-2019-8


“Macri, a millionaire businessman, is paying a heavy price for failing to deliver [for Argentina] on his emphatic promise of zero inflation and zero poverty when he took office in December 2015. Inflation hit 54% over the last 12 months, twice the rate when he took office.

Foreign debt has also more than doubled, after a loss of investor confidence in emerging markets forced Macri to seek a $57.1bn rescue package from the IMF last September, the largest loan it has ever handed out.”

https://www.theguardian.com/world/2019/aug/18/cristina-kirchner-fiery-ex-president-returns-crisis-argentina


“Before the 2010s, it was common for one in every five economies to be growing at 7 percent or more annually. Now, among the world’s 200 economies, just eight, or one in 25, are on track to grow 7 percent this year. Most of those are small economies in Africa.”

https://www.nytimes.com/2019/08/17/opinion/sunday/global-recession.html


“The trade wars and a breakdown in international economic diplomacy cause businesses around the world to pull back.

“This leads to further tumbles in markets and job losses, prompting American consumers to become more cautious.

“High corporate debt loads create a wave of bankruptcies. And central bank policy proves impotent, combined with fiscal policy that is nonexistent.”

https://www.nytimes.com/2019/08/17/upshot/how-the-recession-of-2020-could-happen.html


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

16th August 2019 Today’s Round-Up of Economic News

“…there is room for markets to make new highs in the next few months. In fact, one can imagine several scenarios on how these new highs could come about

“Central banks could embark on emergency interest rate cuts and reintroduce quantitative easing programs to force more cash into equities again. A sudden end to a trade war, with an attempt to save face by both sides, could certainly spark a sustained global relief rally that may end up averting or delaying a recession.

“Indeed, the Trump administration, eager to avoid a recession ahead of the 2020 election, may find itself in a position to end the trade war sooner rather than later. But the administration is still faced with several historic miscalculations of its own making. The massive tax cuts of 2017 have produced little in the form of growth other than a temporary sugar high. Growth is slowing. Long gone are the promises of 4% GDP growth. In fact, growth is looking to drop below 2% in lieu of a trade deal. The only thing that has been growing are deficits, which are on pace to hit $1 trillion this year already.

“All of these are signs that the risk of a global recession is a clear and present danger.

“This is a very tricky environment for investors to navigate through. History suggests there is time to take advantage of future rallies to prepare for the next recession and raise cash before a major market downturn does unfold. But global economic data suggests a global recession may come a lot sooner than anyone anticipated.

“And this reveals an uncomfortable truth: We’ve never faced a recession with so much debt and so little Fed ammunition available and with negative rates still in effect in many countries. There’s no playbook for this. Historic data may be of little predictive use.

“A sudden end to the trade deal may be imperative — without it we don’t have much time before the next recession begins.”

https://edition.cnn.com/2019/08/15/perspectives/global-recession-bond-yield-inversion/index.html


“There are weeks when the markets lead the fretting, and others when the numbers dictate. And then there are weeks — like this one — when markets, data and politics all point to a darker global outlook.”

https://www.bloomberg.com/news/articles/2019-08-15/nobody-likes-these-curves-as-global-economy-bends-out-of-shape


“Stock markets have taken fright over a number of warning signs from key economies, the latest this week being the inversion of the US bond yield curve and news of a contraction in the German economy. Here is a guide to [a few of] the trouble spots in the global economy that are rattling investors.”

https://www.theguardian.com/business/2019/aug/16/warning-signs-for-global-economy-the-countries-spooking-investors


“The worry I have is not so much the vagaries of the stock market, but rather the perception of the future direction of the stock market and its impact on hiring…

“When the CEO and upper management believe that the economy will slow down, they will hit the brakes. This entails laying off employees, instituting a hiring freeze and—through attrition—when people leave, they won’t be replaced. When enough companies do this, it becomes a self-fulfilling, downward spiral.”

https://www.forbes.com/sites/jackkelly/2019/08/15/how-the-wall-street-stock-market-plummet-of-800-points-could-dramatically-hurt-the-job-market/#1528a99520ab


“Truckers have for months been sounding the alarm about a “bloodbath” in their $800 billion industry… Trucking is often looked at as a leading indicator of where the rest of the economy is headed.

“As 71% of America’s freight is moved on trucks, companies foreseeing needing fewer trucks is typically an omen of an economic downturn: If manufacturers are producing less and people are buying less, there’s less of a need to move goods.”

https://www.businessinsider.com/trucking-truckers-bloodbath-signals-recession-inverted-yield-2019-8?r=US&IR=T


“Mexico’s central bank on Thursday cut its key lending rate for the first time since June 2014, citing slowing inflation and increasing slack in the economy, and fueling expectations that further monetary policy easing could be on the way.”

https://uk.reuters.com/article/us-mexico-economy-rates-cut/mexicos-central-bank-cuts-rates-for-first-time-in-5-years-as-economy-sputters-idUKKCN1V526I


“Argentina’s historic market collapse has sparked fears that South America’s second-largest country is on track for yet another default. A stunning result in primary polls over the weekend set off a shockwave in financial markets, with the country’s stock market tumbling 48% in dollar terms on Monday.”

https://www.cnbc.com/2019/08/15/argentina-stock-market-crash-ramps-up-fears-of-another-debt-default.html


“Real estates classifieds company Domain Holdings Australia Ltd on Friday posted a 29.3% fall in annual underlying profit, hurt by the sharpest property downturn in a generation.”

https://uk.reuters.com/article/domain-holdings-results/australias-domain-posts-29-3-slump-in-annual-profit-idUKL4N25B4LZ


“New Zealand’s manufacturing activity contracted in July for the first time since 2012, a survey showed on Friday, as new orders and employment conditions worsened.

“The Bank of New Zealand-Business NZ’s seasonally adjusted Performance of Manufacturing Index (PMI) was 48.2, down 2.9 points from June’s downwardly revised 51.1.”

https://www.businesstimes.com.sg/government-economy/new-zealand-manufacturing-activity-shrinks-for-first-time-in-7-years


“Britain’s banks have warned the government that they will have just hours to turn around their systems if the UK crashes out of the European Union without a deal.”

https://www.thetimes.co.uk/article/banks-will-have-just-hours-to-carry-out-brexit-changeover-rz6d0gnfg


“Government bond yields in the euro area hovered near record lows on Friday, reflecting heightened expectations for European Central Bank easing soon and concern about global recession risks…

“ECB policymaker Olli Rehn on Thursday flagged the need for a significant easing package in September, sending yields across the bloc to new lows.”

https://www.reuters.com/article/eurozone-bonds/euro-zone-bond-yields-linger-around-record-lows-on-recession-risks-idUSL8N25C0ZZ


“German lenders are in a uniquely dangerous position compared to their European counterparts, according to Ronit Ghose, global head of banks research at Citi. The European banking sector has been struggling with profitability ever since the financial crisis… The Stoxx Europe banks has fallen 45% over the past 10 years. This in comparison to the U.S.-focused KBE bank ETF, that tracks banks stateside, has added 86%.”

https://www.cnbc.com/2019/08/15/citi-german-banks-are-in-a-worse-position-than-the-rest-of-europe.html


“Negative interest rates, toppling bond yields, greater regulation and rising recession signals have wiped out most of the value of European banks, with their shares now at meltdown prices approaching the days of the Berlin Wall…

“That means the banks are worth now what they were when Greece, Ireland and Portugal needed bailouts, Cyprus ordered its banks to seize some deposits and Spain’s banks were saved from collapse only by a government rescue.”

https://uk.reuters.com/article/uk-eurozone-banks/euro-zone-bank-share-meltdown-brings-prices-to-brink-of-1980s-idUKKCN1V517U


“In the increasingly topsy-turvy world of bonds, Japan’s notoriously low yields are starting to look high for some investors.

“While the Asian market is historically identified with poor yields and subdued trading thanks to decades of ultra-easy monetary policy, that perception is now being upended as a frenzied global debt rally squeezes returns elsewhere.”

https://www.bloomberg.com/news/articles/2019-08-15/in-a-bond-market-gone-bonkers-japan-is-the-new-high-yielder


““Negative yielding debt has quickly become a new normal, which is a staggering place to find ourselves,” said David Absolon, investment director at Heartwood Investment Management, the UK asset management arm of Sweden’s Handelsbanken.”

https://expertinvestoreurope.com/tacking-the-plague-of-negative-yielding-debt/


“Two decades ago, well over half of the global bond market boasted yields of at least 5 per cent, according to ICE Data Indices. The post-crisis splurge of central bank bond buying and rate cuts lowered this to under 16 per cent a decade ago, but investors could still find plenty of higher yielding debt. Today, a mere 3 per cent of the global bond market yields more than 5 per cent — the lowest share on record.

“Indeed, truly high-yielding debt is now almost an endangered species. Bonds with yields of more than 10 per cent amount to just 0.4 per cent of the global fixed income universe, according to ICE.”

https://www.ft.com/content/34c4944c-bab2-11e9-8a88-aa6628ac896c


“In a recession, manufacturers have to be careful about the impact of slowing down payments to key suppliers.

“If you slow down how fast you pay them, their financial integrity may be impacted.

“Many global supply chains rely on Chinese suppliers and contract manufacturers. China’s industrial output slumped 4.8% in July, for its’ weakest reading in 17 years. Paying small suppliers more slowly in at risk economies could tip them out of business.”

https://www.forbes.com/sites/stevebanker/2019/08/15/how-will-the-looming-recession-impact-global-supply-chains/#4bd6f78be12b


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

15th August 2019 Today’s Round-Up of Economic News

I have been keeping tabs pretty much daily on the global economy’s health since oil prices crashed in 2014 and I have to say there has never been as much cause for alarm as there is right now.

I am seeing burgeoning risk and a growing multitude of vulnerabilities.

We have to hope that the trade war is swiftly resolved and the Fed cuts aggressively this autumn or we are in trouble. We may be in trouble regardless:

“Another day, another round of bad news highlighting the risk that the global economy is headed for a serious downturn.

“China reported the weakest growth in industrial output since 2002. Germany’s economy shrank as exports slumped, and euro-area production plunged the most in more than three years as the overall expansion cooled. US and UK bond markets sent their biggest recession warnings since the global financial crisis.”

https://www.bloomberg.com/news/articles/2019-08-14/recession-warnings-pile-up-for-the-battered-global-economy


“Stocks plunged on Wednesday after the bond market threw up one of its last remaining warning flags on the economy…

“The Dow Jones Industrial Average closed down 801 points at 25,479, a loss of 3%, in the largest one-day point drop since October 2018…”

https://www.dailymail.co.uk/news/article-7356699/Warnings-economic-crisis-Treasury-yields-invert-time-Great-Recession.html


“London house prices have been on the slide longer than during the slump that followed the financial crisis, after a 16th consecutive month of falls was revealed today.

“The latest 2.7 per cent drop in the year to June also means that average prices in the capital are now below where they stood on the day of the Brexit referendum.”

https://www.standard.co.uk/news/london/house-prices-on-slide-longer-than-after-2008-financial-crash-a4213066.html


“According to a new report commissioned by the supporters of second [Brexit] poll, more than half of UK farms could go out of business if Britain crashes out of the EU on 31 October…

“To coincide with the report and launch of the Farmers for a People’s Vote group, campaigners are taking a small flock of sheep past the Cabinet Office where no-deal planning is taking place.”

https://www.theguardian.com/politics/2019/aug/15/half-of-uk-farms-could-fail-after-no-deal-brexit-report-warns


“Deutsche Bank’s recently announced restructuring meant to correct its decadelong financial woes could ultimately make matters worse. Indeed, it could become even more of a threat to taxpayers, the financial system and the global economy…

“Reducing capital to increase short-term returns for shareholders is grossly irresponsible. Deutsche Bank is essentially diverting its critical loss-absorbing capital buffer — that would otherwise be available as a source of strength to weather an economic downturn — to placate its angry shareholders.”

https://www.americanbanker.com/opinion/deutsche-bank-shows-it-learned-nothing-from-the-2008-crisis


“Most governments around the world owe a fortune. But the Italian debt pile would make most others blush. Italy owes $2.3 trillion (€2.06 trillion) in public debt. That’s around 133% of its GDP — a massive ratio that puts it in the top five in the world.

“While the majority of that stock of borrowing is weighing down banks in Rome and Milan, European banks are severely exposed in the event of anything going wrong.”

https://www.dw.com/en/debt-and-doom-loops-the-eurozones-italian-nightmare/a-50019077


“Argentina’s main problem is that it’s a stick in a doom loop. The central bank ought to print money in order to maintain a reasonable deficit. However, due to the very bad economic situation in the country, the deficit keeps growing…

“This means that you need to print more and more money to maintain “stability.” Of course, that’s only possible up to a certain point when investors lose faith, trust, and patience.”

https://seekingalpha.com/article/4285583-argentina-emerging-markets-apocalypse-now


“Though only a small city-state, events in Hong Kong should rouse Americans because of the threat to democracy there, and also the considerable risk of international financial and economic contagion.

“American investors should pay greater attention to the implications of what is happening halfway around the world.”

https://www.marketwatch.com/story/how-the-hong-kong-crisis-could-trigger-a-wider-financial-meltdown-2019-08-14


“The jobless rate in Chinese cities returned in July to its highest level since regular reporting on the data began, as employers turned cautious.

“Other key economic readings for the month, including factory production, consumption and property investment, came in much lower than expected.”

https://www.wsj.com/articles/chinas-economy-weakens-on-several-fronts-as-trade-war-rages-11565770210


“As China moves toward a more market-based approach to determining the cost of money in its economy, one metric suggests corporate debt is going in the opposite direction.

“Some 17% of company bonds in the first half were sold at yields at least 50 basis points below rates in the secondary market, according to data from China Chengxin International Credit Rating Co. That’s a jump from 9.9% in the second half of 2018.”

https://www.bloomberg.com/news/articles/2019-08-14/chinese-new-bond-yield-gap-hides-debt-risks-as-defaults-climb


“President Donald Trump defended his trade wars and attacked the Federal Reserve on Wednesday: “We are winning, big time, against China. Companies & jobs are fleeing.

“Prices to us have not gone up, and in some cases, have come down,” the president wrote on Twitter. “China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut….”

https://markets.businessinsider.com/news/stocks/trump-lashes-out-at-federal-reserve-crazy-inverted-yield-curve-2019-8-1028447405


“For Americans accustomed to paying 4 or 5 percent mortgage rates, let alone the double-digit figures consumers endured in the early 1980s, the new loan from Denmark’s Jyske Bank might seem inconceivable.

“The Danish lender last week started offering home buyers 10-year mortgages at an interest rate of -0.5 percent. That means borrowers over a decade will pay back a little less than the amount borrowed, not including one-time fees.”

https://www.dailyherald.com/business/20190814/banks-are-paying-people-to-borrow-money-thats-alarming-news-for-the-global-economy


“The recession alarm bell ringing in U.S. government bond markets sent investors rushing once more to haven assets, pushing the world’s stockpile of negative-yielding bonds to another record.

“The market value of the Bloomberg Barclays Global Negative Yielding Debt Index closed at $16 trillion Wednesday after the key U.S. 2-year and 10-year yield curve inverted for the first time 2007 — a move often considered a harbinger of an economic downturn.”

https://www.bloomberg.com/news/articles/2019-08-15/negative-yielding-debt-hits-record-16-trillion-on-curve-fright


“The combination of a slew of data suggesting a slowdown in global growth amid the U.S.-China trade war and persistently high levels of oil in U.S. storage has punctured recent optimism in crude markets, stoking expectations leading oil producers may take further steps to support prices.”

https://uk.reuters.com/article/global-oil/oil-prices-extend-losses-as-recession-fears-inventories-mount-idUKL4N25B062


“Five big economies are at risk of recession. It won’t take much to push them over the edge… Germany, Britain, Italy, Brazil and Mexico each rank among the world’s largest 20 economies.

“Singapore and Hong Kong, which are smaller but still serve as vital hubs for finance and trade, are also suffering.”

https://edition.cnn.com/2019/08/14/economy/recession-risk-economies/index.html


“During the global financial crisis, I regularly called a close friend in NYC to comment on then-daily economic events that were shocking. Bear Stearns went bankrupt; Lehman went bankrupt; the economy shed 600,000 jobs per month. While the build-up to the crisis was amazingly slow, once the bottom dropped, it dropped hard.

“That event stands in stark contrast to the last 12 to 18 months when there’s been a continual grinding lower in the global economic data, primarily centered in the manufacturing sector.”

https://seekingalpha.com/article/4285439-global-economic-picture-getting-darker


“…events this month signal that the problems facing the world economy are more complex and intractable than the immediate reaction to President Trump’s trade war de-escalation might suggest. A tactical retreat here and there won’t solve the deeper problems hanging over the world economy.

“Once chaos has been unleashed into the global economic system, it can be hard to reel back in.”

https://www.nytimes.com/2019/08/14/upshot/global-economic-trouble-is-brewing-and-the-trade-war-is-only-part-of-it.html


“When assumptions about how the world works are shattered, a global downturn is often the result. The world learned in the early 1970s that the era of cheap oil was over, in the early 1980s that countries could default, and a decade ago that American mortgages and global banks aren’t safe.

“Today, a similar rethink of globalization is under way. From Washington to Buenos Aires, nations’ mutually reinforcing commitment to open markets is disintegrating.”

https://www.wsj.com/articles/as-global-order-crumbles-risks-of-recession-grow-11565784000


“What should worry risk managers is that we are in unchartered territory. According to Sven Henrich, founder and lead market strategist for NorthmanTrader…

““We’ve never faced a recession with so much debt and so little Fed ammunition available.” I agree with him that “With negative rates still in effect in many places, there’s no playbook for this. Historical data will be of little use.””

https://www.forbes.com/sites/mayrarodriguezvalladares/2019/08/14/rising-global-recession-odds-signal-more-credit-and-market-risks-for-financial-institutions/#3e7bdf4b75df


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

 

14th August 2019 Today’s Round-Up of Economic News

“Argentina is teetering on the brink of a financial crisis after its current leader, President Mauricio Macri, was defeated by a left-wing opponent in the country’s primary elections over the weekend by a greater than expected margin.

“The stunning loss sent Argentine markets reeling. The S&P Merval Index plummeted 48% Monday, the second-largest single-day drop in any global stock market since 1950, according to Bloomberg.

“The Argentine peso also declined, losing 15% of its value against the US dollar Monday and falling further Tuesday to a new low.

“Investors fear that if Macri doesn’t win a second term in October, the opposing team of left-leaning Alberto Fernández and his running mate — the former leader Cristina Fernández de Kirchner — will undo the progress Macri has made to regain the trust of investors in Argentina and abroad.”

https://markets.businessinsider.com/news/stocks/argentina-on-brink-of-financial-crisis-market-rout-election-surprise-2019-8-1028443209


“Concerns about Argentina adding to its long list of sovereign defaults swirled on Tuesday, as investors continued to digest the heavy defeat of pro-reform President Mauricio Macri in the country’s primary elections at the weekend…

“Bank of America Merrill Lynch’s Claudio Irigoyen, said in a note, “I think the economy will sink even more, contracting 2% this year with inflation going to 50%. And likely next year… the probability of default will jump to 50% at least.””

https://uk.reuters.com/article/us-argentina-markets-cds/argentina-default-concerns-grow-after-market-crash-idUKKCN1V31BI


“Matteo Salvini, Italy’s deputy prime minister, could not have chosen a worse moment for both the Italian and the European economies to trigger an Italian political crisis.

“Global economic policymakers and investors would be ignoring Italy’s deteriorating political situation at their peril since an Italian economic crisis has the potential to have large spillover effects to the rest of the global economy.”

https://seekingalpha.com/article/4285039-italian-debt-crisis-like-greece-steroids


“Germany’s economy shrank in the second quarter of the year as weak global demand caused exports from the former powerhouse of Europe to drop off, official data showed today…

“Early signs for the third quarter look ominous. Manufacturing business surveys for July were all gloomy, as was the ZEW [investor sentiment] survey for August, published yesterday.”

https://www.cityam.com/german-economy-shrinks-in-second-quarter-as-exports-slump/


“With Boris Johnson claiming he will take Britain out of the EU by 31 October “do or die”, the UK’s reliance on EU food is a major risk.

“In the event of a no-deal Brexit, the UK would be obliged under World Trade Organization rules to impose average food import tariffs of 22% and conduct product inspections, leading to delays and shortening the shelf-life of products.”

https://www.theguardian.com/politics/ng-interactive/2019/aug/13/how-a-no-deal-brexit-threatens-your-weekly-food-shop


“European banks are facing a make-or-break moment.

“Fears of slowing economic growth, negative rates, and geopolitical uncertainty in Italy and the U.K. have ravaged the Stoxx Europe banks index, pulling it down to a support level touched in 2011 and in 2016. It had not broken below that support since the financial crisis lows.”

https://www.cnbc.com/2019/08/13/european-banks-could-break-down-to-financial-crisis-lows.html


“Low mortgage rates have helped push U.S. mortgage debt to the highest level ever. In the second quarter of 2019, Americans’ mortgage balances totaled $9.4 trillion, $162 billion more than the previous quarter, according to data released Tuesday by the Federal Reserve Bank of New York.

“This surpassed the previous peak of $9.3 trillion in mortgage debt recorded back in the third quarter of 2008.” [don’t think this is adjusted for inflation though].

https://www.marketwatch.com/story/americans-now-have-more-mortgage-debt-than-ever-before-2019-08-13?mod=hp_realestate


“Serious auto-loan delinquencies – 90 days or more past due – in the second quarter, 2019, jumped 47 basis points year-over-year to 4.64% of all outstanding auto loans and leases, according to New York Fed data released today.

“This is about the same delinquency rate as in Q3 2009, just months after GM and Chrysler had filed for bankruptcy. The 47-basis-point jump in the delinquency rate was the largest year-over-year jump since Q1 2010.”

https://wolfstreet.com/2019/08/13/auto-loan-subprime-delinquencies-at-2009-level-biggest-12-month-surge-since-2010/


“China has denied requests for two US Navy ships to visit Hong Kong, the Pacific Fleet said on Tuesday, after the two countries engaged in a war of words over the city’s pro-democracy protests…

“Beijing has increasingly pitched the anti-government protests as funded by the West, but has provided little evidence.”

https://www.scmp.com/news/hong-kong/article/3022681/china-rejects-requests-american-warships-visit-hong-kong-us-navy


“China’s central bank will likely roll over maturing debt to ease liquidity in the financial system as the economy slows amid the trade dispute with the U.S.”

https://www.bloomberg.com/news/articles/2019-08-14/china-expected-to-roll-over-maturing-debt-amid-economic-slowdown?srnd=economics-vp


“The Chinese government had put plans in place to reduce the high levels of debt in the country’s economy this year, but the negative economic effects of the trade war have put those plans on the back burner and companies are again levering up, in large part with dollar-denominated debt.

“As the yuan weakens, debts held in dollars get more expensive. That could pose a major problem for China…”

https://www.freshplaza.com/article/9132952/worry-grows-about-china-s-falling-currency-and-rising-dollar-debt/


“China’s industrial output slowed to a 17-year low in July as the signs mount that the trade war with the US is beginning to take a toll on the world’s second-largest economy. The 4.8 per cent year-on-year growth in factory output was the weakest since February 2002 and far below economists’ expectations of a 5.8 per cent rise…”

https://www.cityam.com/chinese-industrial-output-slows-to-17-year-low/


“China is the world’s largest automotive market. Therefore, any negative sentiment in China’s car sales echoes around the globe. Last year was the first time in more than two decades that China’s car sales fell YoY (year-over-year). This year hasn’t been any different. Auto sales have now contracted for 13 consecutive months…

“Perhaps even more concerning is that NEV (new-energy vehicle) sales, among the rare bright spots in China’s auto demand, fell in July.”

https://marketrealist.com/2019/08/chinas-car-sales-slowdown-fears/


“[India’s] sales of passenger vehicles plunged 31% in July, according to figures released by the Society of Indian Automobile Manufacturers (SIAM) on Tuesday. It’s the ninth straight month of declines and the sharpest one-month drop in more than 18 years, SIAM Director General Vishnu Mathur told CNN Business.

“”This is a very deep sort of a slump that is impacting every segment of the industry,” Mathur said.”

https://edition.cnn.com/2019/08/13/business/india-car-sales-slump/index.html


“Global motor vehicle output declined last year by 1%, the first annual decrease since 2009 and only the third fall in 20 years, according to data from the International Organization of Motor Vehicle Manufacturers (OICA).

“But output is on course to drop much faster in 2019… Motor manufacturing is one largest and most networked of all global value chains, making it central to the global economy.”

https://uk.reuters.com/article/uk-global-autos-kemp/column-global-motor-manufacturing-slump-hits-oil-demand-idUKKCN1V319Z


“[Australia’s] “retail recession” is getting deeper and is now worse than anything faced by the sector during the global financial crisis, a key survey of the nation’s businesses has revealed as the Reserve Bank grows confident its interest rate cuts are flowing through to borrowers.”

https://www.smh.com.au/business/the-economy/retail-sales-drop-to-levels-not-seen-since-the-1991-recession-20190813-p52gn3.html


“[Australian] wages are stagnant. Wealth is falling. House prices are down. Consumers aren’t spending. Businesses aren’t investing. Interest rates are at record lows and may be heading for zero.

“The federal government and Reserve Bank seem locked in an arm wrestle over whether fiscal or monetary policy should be used to generate more stimulus.”

https://www.theguardian.com/business/2019/aug/14/the-no-growth-future-has-australias-economy-finally-run-out-of-luck


“Recession fears are spreading among investors at a time when valuations across major assets are looking dangerously stretched following years of monetary stimulus, the latest Bank of America Corp. survey shows.

“About a third of asset managers polled believe a global recession is likely in the next 12 months, the highest probability since 2011 — when Europe was engulfed by a sovereign-debt crisis.”

https://gulfnews.com/business/recession-fear-spooks-global-markets-amid-stretched-valuations-1.65791250


““Investors are the most bullish on rates since 2008 as trade war concerns send recession risk to an 8-year high,” Michael Hartnett, chief investment strategist, said in a statement…

“Even amid $15.9 trillion worth of negative-yielding bonds globally, investors continue to flock to the space…”

https://www.cnbc.com/2019/08/13/investors-flock-into-bonds-as-recession-fears-rise.html


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