27th Feb 2020 Today’s Round-Up of Economic News

We’ve already had subtler forms of helicopter money but this is the first blatant cash hand-out to citizens that I know of. I’m sure we’ll see more, as the situation deteriorates:

Hong Kong is handing most of its residents a pile of cash to spend as it tries to save its slumping economy from the aftermath of protests and the coronavirus outbreak.

“The Asian financial hub said Wednesday that the measure… will involve giving 10,000 Hong Kong dollars (about $1,280) to all permanent residents in the city who are at least 18. About seven million people will benefit from that program.”


China has announced a flurry of steps in recent weeks to shore up investor confidence and help keep smaller businesses afloat as the coronavirus epidemic severely disrupts economic activity.

“Many analysts believe more support measures are likely soon as disruptions look set to extend well into the second quarter.”


““The economic weakness in late 2019 is already hitting the trends for 2020, with a negative carry-over growth effect.

“Given its close relations with China, the effect of the Coronavirus outbreak on Japan could be significant and will have two channels of transmission: trade and tourism. It now looks possible that Japan’s economy will contract this year.””


“Iran’s novel coronavirus death toll has climbed to 19, with 139 confirmed cases of the sickness…

“Rouhani said the virus should not further cripple the country’s economy. Iran has the most coronavirus cases in the Middle East, and is in an ongoing state of economic crisis. US sanctions on the country have seen its currency tank and unemployment grow.”


“Italy’s economy already was in poor shape before the coronavirus hit the northern part of the country,” noted ABN AMRO economist Aline Schuiling and head of financial markets research Nick Kounis.”


Germany is planning to temporarily suspend its longstanding government debt brake as it attempts to revive its economy.

“The spreading coronavirus and its likely impact on economic growth has added urgency to calls for Europe’s largest economy to loosen the purse strings. The move could open an avenue for limited fiscal stimulus in order to provide relief for indebted regions.”


The longest economic expansion in American history has survived an unprecedented trade war, a catastrophic tsunami in Japan and a severe crash in oil prices. The fast-moving coronavirus poses yet another grave test.

“The emerging health crisis threatens to dim the brightest part of the United States, if not the world, economy: American wallets.”


Coronavirus is rupturing supply-chains:

“Manufacturers need to assume the worst and make contingency plans.”


Airlines are turning to some of the world’s hardest-hitting disinfectants, capable of stopping everything from sexually transmitted diseases to the MRSA superbug, in the fight against the coronavirus.”


As coronavirus continues its spread outside of China, the global airline industry is recalibrating its response to a threat that could be its worst since the financial crisis a decade ago.

“Deutsche Lufthansa AG, Germany’s flagship airline, said Wednesday it would start slashing costs in anticipation of a coming hit to revenues and profits from canceled flights to China, where the virus first emerged. Among other measures, it is offering its staff voluntary, unpaid leave.”


Global stock markets dropped and U.S. government bonds rallied as investors braced for greater economic fallout from the international spread of the coronavirus

“On Wednesday, American authorities said a patient in California might be the first U.S. coronavirus case to be diagnosed without a clear explanation for how the disease was transmitted.”


The continued threat of coronavirus to consumer spending, supply chains, and trade is bringing the world “to the brink of a global recession” in 2020, the CEO of financial services firm deVere Group said Wednesday.

“”Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus,” Green said. “Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.””


Brad Setser, Senior Fellow for International Economics at the Council on Foreign Relations, and Senior Advisor at Exante Data, on how the coronavirus is impacting global money flows. Hosted by Lisa Abramowicz and Paul Sweeney.”

Audio [full disclosure, I haven’t listened to it]:


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26th Feb 2020 Today’s Round-Up of Economic News

“Covid-19 is self-evidently beyond the point of meaningful containment. Virologists and infectious disease experts have known for three weeks that this was highly probable, and certainly not a mere tail-risk as suggested by equity market pricing. We are now there.

The global economy may be heading for some sort of “sudden stop” in supply chains, trade flows and tourism more akin to the outbreak of the First World War than the Lehman or dotcom crises.”


The U.S. stock-market rally is unraveling, with a period of historic gains coming to a screeching halt, as fear that the coronavirus epidemic may reach America rattles Wall Street…

“The Dow finished Tuesday down nearly 880 points to mark its sharpest-ever two-session slide in point terms, losing about 1,910 points, according to Dow Jones Market Data.”


Gene Seroka, executive director of the Port of Los Angeles, told CNBC on Tuesday that based on a sharp slowdown in shipping he believes the economic drag from the new coronavirus will turn out to be larger than SARS:

““At that time, we were all grounded. We weren’t moving around domestically nor internationally. This appears to be much worse because of the number of folks who were infected and the lack of productivity that is taking place through the supply chain, starting with the manufacturing base,” Seroka said…”


After showing signs of improvement in December, India’s economic report card deteriorated again in January, with 10 of the 16 high-frequency indicators tracked by the Mint Macro Tracker in the red (below the five-year average trend).”


Should China enter financial crisis, the world would be severely impacted. Bank failures and loan defaults would spike, sending ripples around the global banking system. Given the record amounts of corporate debt at U.S. corporations, any increase in global lenders’ fear levels would impact borrowers.

“As China is a main supplier of numerous Western companies, the ensuing disruptions and restructuring would add to the supply-chain shocks already present with COVID-19.”


Central banks are nearly out of ammo:

“The underlying policy motivation is the growing recognition that prolonged and excessive reliance on central banks has reduced the power of both conventional and unconventional measures; it has even risked making them counterproductive.”


The global economy was already vulnerable in 2019:

“Global trade had a rough 2019 as weaker world growth and a manufacturing recession took their toll. As the world now watches the spread of the coronavirus and its impact on businesses and households, updated figures from the CPB World Trade Monitor show trade volumes fell 0.4% last year.”


The Covid-19 health emergency that started in China and is now fast spreading worldwide is having extreme contagion effects on the oil industry as global demand and prices coincidently fall

“The collapse in Chinese demand is being likened to the biggest shock to oil markets since the 2008-9 global financial crisis.”


The potential implications for the world economy are beyond dire. Already, we’ve seen the isolation of the world’s second largest economy, China. No flights in and no flights out. Russia, Mongolia and North Korea have closed their borders with China. Turkey and Pakistan have closed their border with Iran. Israel is considering quarantining visitors from Italy and Australia. Austria has closed its borders with Italy. Italy has locked down 11 towns in Lombardy.

“This time is different. We have something very real to fear, which is producing real-time economic reactions, like the closing off of China, that are truly beyond belief. These reactions are fully capable of panicking billions of investors and consumers in our highly interconnected and mutually dependent global economy.”


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25th Feb 2020 Today’s Round-Up of Economic News

The world woke up Monday to the reality that the coronavirus epidemic is going to have a much bigger impact on the global economy than investors and policy makers had assumed. Just how big, no one really knows

“The potential for disaster is sobering. The economies of the world are extraordinarily resilient, yet extraordinarily dependent upon each other in a crisis. Sadly, the things we need most to get us through this — wise leadership, global cooperation and clear thinking — are harder to find than a surgical mask.”


Italy’s economy, which was already contracting at the end of last year, looks sure to be thrown into yet another recession by a sudden outbreak of coronavirus that has rocked the country…

“Lombardy, around the financial capital Milan, and Veneto account for around a third of Italian GDP and half its exports.”


Investors holding Lebanese bonds are expecting the worst, as years of financial mismanagement may well push the country to default on its debt for the first time in its history

“Lebanon was hit with a double downgrade over the weekend by two of the world’s largest ratings agencies, dragging its sovereign credit rating further into junk territory…”


Malaysia’s prime minister Mahathir Mohammad’s surprise resignation means politics looks set to be an added headwind for the economy already reeling under the impact of the coronavirus outbreak.

“The crisis throws the imminent fiscal stimulus package into disarray…”


The emergence of hundreds of coronavirus cases in two major economies outside China has dashed hopes of a speedy recovery from an epidemic that has already wreaked havoc on global supply chains and hit company profits.

“The number of infections in South Korea, a major producer of cars, electronics and machinery, has shot up to more than 830.”


“…[the global economy had no margin] for an accident at the beginning of this year. Yet there has been a big accident: China’s COVID-19 shock.

“Over the past month, the combination of an unprecedented quarantine on Hubei Province (population 58.5 million) and draconian restrictions on intercity (and international) travel has brought the Chinese economy to a virtual standstill.”


For some years now, many analysts have believed that the next major global crisis would start in China, because it was suspected to be hugely overleveraged; equally, if not more important, nobody knew what was really going on. However, with central banks keeping the money feed so easy, markets all over the world kept rising.

“Judging from the way equity markets are behaving today, could that time have come?”


Fear has returned to Wall Street. The spread of coronavirus cases in Italy, Iran and South Korea is shaking investors out of their recent complacency.

“Investors are nervous that the global economy will slow dramatically in the first quarter because of coronavirus. And they are piling into classic safe haven fear trades as a result and shunning anything that seems risky.”


More than $1 trillion was wiped off global stock markets on Monday as panicked investors bet that the coronavirus outbreak will cause a devastating economic slowdown.”


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24th Feb 2020 Today’s Round-Up of Economic News

Just a reminder, if any were needed, that the global economy in 2019 was already awash with unprecedented levels of debt and teetering on the brink of recession (ie less than 3% growth for the totality), with protectionism on the rise, and trade, manufacturing and car sales contracting.

And now we have the coronavirus on top. Simultaneous supply and demand shocks are emanating out of China, as well as huge supply chain disruptions that can cascade in unpredictable ways.

“…the coronavirus continues to spread, and there are signs that some of the world’s top economies could slide into recession as the outbreak compounds pre-existing weaknesses.

“Take Japan: The world’s third-largest economy shrank 1.6% in the fourth quarter of 2019 as the country absorbed the effects of a sales tax hike and a powerful typhoon. It was biggest contraction compared to the previous quarter since 2014.

“Then there’s Germany. The biggest economy in Europe ground to a halt right before the coronavirus outbreak set in, dragged down by the country’s struggling factories…

“[a] number of smaller economies that are hurting, too. Hong Kong is in recession and Singapore could soon suffer a similar fate. Fourth quarter GDP data from Indonesia hit a three-year low, while Malaysia had its worst reading in a decade, he noted to clients on Friday.

“Meanwhile, engines of growth like China and India slowed in 2019… All of this brings to the fore concerns about the global economy’s ability to withstand a shock from the coronavirus.


““One group of [US] consumers is doing well. They have rising incomes, and they can afford the surging home prices, the surging health-care costs, and the surging new-vehicle prices,” he wrote.

““There are other consumers whose incomes have not budged much. They have jobs but are living paycheck to paycheck, and not because they’re splurging but because, at their level of the economy, prices of basic goods and services have run away from them.””


Last week, the 30-year Treasury yield hit an all-time low at 1.97%. This is a major warning that the bond market is sending to us. It is telling us that growth is in free fall…

“There are multiple signs of a weakening [US] economy here. First of all, we see that trade is coming to a standstill as freight rates have hit a new low for the decade…

“Second, the manufacturing and services PMI just went into contraction. This means that GDP is going to start contracting as well.”


Global investors are being overly complacent about downside economic risks, aggravated but not limited to the growing impact of coronavirus…

“…they are overestimating the power of monetary and fiscal stimulus to keep the global economic party going.”


A decade-long slide in Australian interest rates is threatening to turn one of the global currency market’s most popular wagers on its head

“Foreign exchange traders are starting to look Down Under as a place to source cheap funds, not somewhere to invest them.”


Hong Kong is poised to see the biggest jump in more than a decade in personal bankruptcies and companies winding up this year, as individuals and firms are overwhelmed by “multiple problems” that are far worse than any crisis seen previously, according to the Hong Kong Institute of Certified Public Accountants.”


China postpones most important annual political assembly because of virus.”


“A survey of small- and medium-sized Chinese companies conducted this month showed that a third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months…

“If China fails to contain the virus in the first quarter, I expect a vast number of small businesses would go under,” said Lv Changshun, an analyst at Beijing Zhonghe Yingtai Management Consultant Co.”


It has taken a massive amount of interventions by central banks to keep economies afloat globally over the last decade, and there is rising evidence that growth is beginning to decelerate.”


““The major central banks all face similar problems, including how to deal with another economic downturn,” said an executive of one of the banks present at the G20 meeting.

““They’ve been discussing this topic for a while. It’s about time they come up with some form of conclusion,” he said on condition of anonymity due to the sensitivity of the matter.”


The two-day gathering of the Group of 20 (G20) finance chiefs ended Sunday with a commitment to mobilize all policy tools to keep the global economy on track

“…amid increasing concerns over the ripple effects of the coronavirus shock that has left China largely idle.”


In 2019, the OECD revealed last week, OECD nation governments took their borrowing to a fresh high of $11.4tn. The Paris-based thinktank says the new figure is a cause for worry, especially when those same governments have only managed to grow their national economies at a snail’s pace over the past 10 years…

“And those fears don’t stop at government debt. The OECD has spent the past couple of years warning about the colossal sums that corporations have borrowed.”


The last time a coronavirus outbreak hit China in 2003, the global economy emerged relatively unscathed. Now, nearly two decades later, the growth-damping effects of a similar pathogen threaten to ripple around a world transformed by China’s boom.”


The overall global economic impact of coronvirus is set to be “bigger than the US-China trade war”, according to a report by a leading trade payments insurer.”


“The world is nearing the “tipping point” at which the coronavirus outbreak will become an uncontrollable pandemic, experts have warned…

“Dr Bharat Pankhania, a clinical lecturer at Exeter University, told The Daily Telegraph: “It is clear that all the important ingredients for a pandemic are now present. It’s better to be honest and say it.””


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21st Feb 2020 Today’s Round-Up of Economic News

Bank of Japan Governor Haruhiko Kuroda said he was watching the coronavirus impact on the economy with “grave concern,” in a nod to the growing toll the epidemic is taking on manufacturing activity and exports across Asia.

“The fallout from the health crisis will be a main topic of debate at a Group of 20 finance leaders’ meeting in Riyadh, Kuroda said on Friday, in a sign it could overshadow the weekend meeting of the world’s top economies.

“Massive business disruptions in China are starting to spillover into the global economy, with parts shortages rippling through supply chains as far away as the United States. Asian economies that are heavily reliant on exports to China and Chinese tourists are being hit hard on both fronts.”


Asia’s biggest economies are already feeling the brunt of the coronavirus shock.

“Key gauges for manufacturing in Australia and Japan fell while early export orders for South Korea showed a slump in Chinese demand.”


The Australian dollar has plunged to an 11-year low — its worst level since the global financial crisis — following an unexpected jump in unemployment…

“The Reserve Bank… [has already] slashed rates three times last year to a record low of 0.75 per cent.”


Cracks in Hong Kong’s retail industry are widening as the coronavirus fallout heaped pressure on more players

“The biggest public health crisis since 2003 follows months of social unrest in 2019 that sank the economy into the first contraction since the global financial crisis in 2009.”


China car sales plunged 92% during the first two weeks of February as the coronavirus outbreak kept buyers away from showrooms. …

“It was even worse in the first week, when nationwide sales tumbled 96%…”


The economic slowdown is wreaking havoc on the automobile industry in India.

“All major automakers in the country reported declining sales throughout the course of last year and the downturn continued this year, as well as manufacturers, reported a 13 percent decline in January year-on-year. Now, vehicle registration data has rubber-stamped the downturn.”


One of the key indicators of India’s economic slump is the declining consumer goods production rate.

“As per the Index of Industrial Production, the production rate was 5 per cent in 2017-18 and fell to 1 per cent in 2019-20.

“This decline was both in terms of value and volume. This means consumers were not only buying lesser quantities but also opting for cheaper alternatives…”


It’s hard to know whether to laugh or simply dismiss as satire the efforts of Hassan Diab’s cabinet to survive Lebanon’s economic collapse.”


Two FTSE 350 companies have joined the ranks of firms warning the coronavirus outbreak has had a negative impact on their business already.

“Recruitment firm Hays and engineering company Aveva Group have said that the travel restrictions put in place to curb the spread of the COVID-19 epidemic has caused them material damage.”


Flight cancellations caused by the coronavirus outbreak will likely lead the global air transport industry to shrink for the first time since the global financial crisis of 2008 and 2009, a trade group warned.”


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20th Feb 2020 Today’s Round-Up of Economic News

The coronavirus could cost the global economy more than $1tn in lost output if it turns into a pandemic, according to a leading economic forecaster. Oxford Economics warned that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1tn in lost income.

“The consultancy said its model of the global economy showed the virus was already having a “chilling effect” as factory closures in China spilled over to neighbouring countries and major companies struggled to source components and finished goods from the far east.”


The International Monetary Fund (IMF) said on Wednesday that Argentina’s debts were “unsustainable” and that private creditors would need to make a meaningful contribution to get the South American nation back on its feet.

“The statement came as the Fund wrapped up a week-long visit to the country, which is battling to avoid defaulting on around $100 billion in loans and bonds after a biting recession, high inflation and a sharp market crash pummeled Argentina last year.”


Camila and Darianyelis, aged nine and seven, are among nearly one million “left-behind” Venezuelan children whose parents have been forced to migrate, leaving their offspring in the care of grandparents, aunts, siblings, neighbours or sometimes even completely alone.”


“It is boom time for junk-rated slices of subprime auto-bond deals [USA].

Auto-loan delinquencies may have approached crisis-era levels recently, but that hasn’t put the brakes on demand for riskier slices of subprime auto-loan bond deals.”


““Major disruption to the global supply chain because of the Covid-19 continues, affecting industries from automotive to toys – and the issue continues to escalate,” said Richard Wilding, Professor of Supply Chain Strategy at Cranfield University.

““In China, smaller companies may find it easier to get back up and running. But larger factories may have to go through a cleaning and disinfectant process before staff can fully return and implement appropriate procedures to identify potential infections in the workforce, similar to what we have seen at airports. For larger sites implementing such procedures could take weeks.””


Choked off from suppliers, workers, and logistics networks, China’s manufacturing base is facing a multitude of unprecedented challenges, as coronavirus containment efforts hamper factories’ efforts to reopen.

“Many of those that have been granted permission to resume operations face critical shortages of staff, with huge swathes of China still under lockdown and some local workers afraid to leave their homes. Others cannot access the materials needed to make their products, and even if they could, the shutdown of shops and marketplaces around China means demand has been sapped.”


“China said on Thursday it lowered its benchmark lending rates — a move that was widely expected by analysts as the world’s second-largest economy faced threats from an outbreak of a deadly coronavirus

“Bo Zhuang, chief China economist at research firm TS Lombard, said the Chinese economy would need more “aggressive” easing.”


Just 34 per cent of nearly 1000 small and medium-sized firms [in China] said they could survive for a month on current cashflow, a recent survey by Tsinghua University and Peking University showed.

“A third said they could last for two months, while 18 per cent said they could stick it out for three months.

“”There could be big layoffs,” said Wang Jun, Beijing-based chief economist at Zhongyuan Bank.”


Hong Kong is heading for its first back-to-back annual recessions on record, as the coronavirus outbreak cripples an economy already battered by months of political unrest.

“Economists’ forecasts since the start of this month point to a contraction of more than 1 per cent this year, following a 1.2 per cent decline last year.”


Russia’s exports to China dropped by almost a third in the first six weeks of the year as the spread of coronavirus sapped demand in the world’s second-biggest economy. Exports dropped 21% to 620,000 tons year-on-year…”


What is wrong with this picture? Aussie dollar hits its lowest level in eleven years while…

“Australian shares scaled a record high on Thursday, tracking Wall Street, as expectations of more stimulus from China amid the coronavirus outbreak and a big drop in confirmed new cases boosted risk sentiment.”


U.S. stock markets continue to blaze in ‘risk-on’ mode despite a number of global headwinds. The Dow Jones Industrial Average (DJIA) pushed nearly 100 points higher on Wednesday, hovering just shy of all-time highs.

“But are traders ignoring the bigger picture? Japan and Germany – two of the world’s four largest economies – are on the brink of recession. Meanwhile, China is expected to record its slowest growth in almost 30 years (and that’s before the coronavirus hit).”


Yale’s Stephen Roach said the markets continued move to the upside despite coronavirus uncertainty does not make sense because “irrational exuberance never makes sense.”

““As long as central banks are opening up the liquidity spigot as wide as they are, the markets pay absolutely no attention to any potential threats to economic activity,” Roach said. “It’s the here and now, and it works until it doesn’t.””


“Equally eye-popping is the US$600 trillion worth of derivatives – over six times global GDP – that appear in financial statement footnotes but not on balance sheets due to “netting” that assumes counterclaim matching and liquidity that won’t exist during the next financial crisis, as for the last.

“Derivatives of such magnitude mean that even small mismatches will cause instant insolvency for many firms, among them some big banks…

While triggers for dips are difficult to predict, one thing is certain: central bankers face a dilemma.

“They need to raise near-zero interest rates to equip themselves for the next downturn and mitigate distorting effects of low interest rates on real asset values, investments, savings and income equality. Yet, by doing so, they risk causing a downturn, as they have done before.

“So my prediction is that, unless one of the candidates above triggers a market collapse before they do, central bankers will.

As I said in 2007, consider selling soon.”


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