“If there’s a serious recession on the horizon, the world’s central banks may have trouble fighting it.
“Central banks took dramatic and unorthodox steps to prevent economic collapse during the financial crisis. They slashed interest rates, and in the years that followed spent trillions on bonds as part of an effort to spur growth.
“One decade later, global central banks are only starting to reverse those moves.
“Interest rates in developed economies remain incredibly low; in some places, they’re even negative. The Federal Reserve is unloading some of the bonds it bought, but central banks in Europe and Japan have not yet done so.
“The question now is whether central banks waited too long to raise rates to more normal levels, leaving them unprepared for the next crisis.
“”If we have a recession, I think it’s going to be worse than normal,” said Kenneth Rogoff, a professor at Harvard University and former chief economist at the International Monetary Fund. “It will be more difficult to respond.”
Politics is also making life more complicated for central banks. In countries like India and Turkey, they’ve faced threats of political interference, while President Donald Trump has repeatedly criticized the Federal Reserve…
“Questions over political independence of central banks, combined with their relative lack of horsepower, means they might not be able to come to the rescue in a recession…
“Put simply, the central banking system is “running out of ammo,” according to Ed Yardeni, president of investment advisory firm Yardeni Research.
“There may very well be limits to what monetary policy can accomplish,” Yardeni said. “And it may be a mistake to tell the public they can fix all of our problems.””
“The European Central Bank is expected to wait until the fourth quarter to raise its deposit rate, later than thought just a month ago, according to economists in a Reuters poll, who also said the chances of a euro zone recession have grown…
“The ECB is now expected to raise its deposit rate, currently at -0.40 percent, to -0.20 percent in the fourth quarter and wait until early 2020 to raise its refinancing rate from zero to 0.20 percent.”
“British manufacturers are being forced to build up financial buffers in preparation for a no-deal Brexit as the cost of stockpiling goods and materials puts companies under strain.
“Measures taken by manufacturers to prepare for a disorderly exit include creating cash cushions and taking out working capital loans to cover the costs of stockpiling.”
“Borrowing on credit cards is expected to plunge to the lowest levels since 2007 in the three months before Brexit, according to the Bank of England, in another indication of stresses facing the UK economy.
“According to the latest quarterly health check on credit conditions from Threadneedle Street, high street banks forecast borrowing on plastic will decline in the first quarter by the most since records began 12 years ago.
“It comes amid growing concern over consumer spending… Its gauge for mortgage lending also dropped to -17.5 in the final quarter of 2018.”
“Nearly half of UK consumers expect 2019 to bring a financial crash that is worse than 2008, according to wealth management firm Spearvest.
The survey of 1,000 people on their economic views for 2019 found that 44 per cent foresee a financial crisis that is worse than that experienced almost a decade ago.”
“Germany is examining whether it can fix its two largest lenders — Deutsche Bank AG and Commerzbank AG — by combining them into a national champion that’s once again able to challenge foreign rivals. History suggests it’s a recipe for more trouble.
“Spain encouraged the merger of seven failed savings banks into Bankia SA in 2010, only to bail out the combined entity two years later when it collapsed…”
“What goes widely unnoticed is that China is already in crisis. No, it’s not the sort of hold-on-for-dear-life collapse the US had in 2008 or the surprising, ferocious meltdowns the Asian Tiger economies experienced in 1997.
“Nonetheless, it’s a crisis, complete with gutted banks, bankrupt companies, and state bailouts. Since the Chinese distinguish their model of state capitalism as “socialism with Chinese characteristics,” let’s call this a “financial crisis with Chinese attributes.”
“The Reserve Bank [of Australia] could be cutting interest rates within months amid new warnings house prices in Sydney and Melbourne could fall by more than 20 per cent and pull down the national economy…
“Capital Economics economists Marcel Thieliant and Ben Udy said they expect prices to fall by an average of 15 per cent across the nation’s capital cities, making it the deepest and longest fall in prices on record.”
“The number of residential properties sold in December was the lowest for that month in seven years, figures from the Real Estate of Institute of New Zealand show. The number of houses sold in New Zealand fell 12.9% year on year…”
“Corporations globally will increasingly default on debt as economies slow while borrowing costs and political strife escalate, according to a quarterly survey by the International Association of Credit Portfolio Managers.
“The group’s credit default index sank in the fourth quarter to the most negative reading in more than nine years, worsening sharply from the prior quarter and indicating a broad-based call for rising debt defaults over the next 12 months.”
“If the chart below from Westpac Bank is any guide, the positive momentum the global economy enjoyed over the past couple years looks set to come to an end in 2019… “As things currently stand, the global economy is looking a bit sick, especially Europe.”
“Two million people are internally displaced, corruption is widespread and mismanagement rife.
“Sudan is in the grip of a long-running economic crisis that has its roots in the secession of South Sudan in 2011 and the loss of oil reserves to the new and troubled southern state. Spiralling inflation has hit Sudan’s embattled middle-classes. A cut in the subsidy for bread – the proximate cause of protests in place like El-Gadarif – was merely the spark that ignited deep-seated anger and desperation.”
“Obtaining information about this week’s crackdown in Zimbabwe has been greatly complicated by the internet shutdown imposed by the government on Tuesday…
“But Isaac’s eyewitness account has been echoed by other witnesses, activists, doctors and lawyers contacted by the Mail & Guardian.
“Most would not speak on record, expressing fears of arrest or worse. They described a nationwide pattern of executions, indiscriminate assaults and home invasions, committed either by state security forces or by armed, plainclothes militia supervised by security forces.”
“Global growth is slowing and the world economy is headed for a recession in 2019 unless something happens to give it renewed momentum.
“The OECD’s composite leading indicator fell to just 99.3 points in November, its lowest since October 2012, and down from a peak of 100.5 at the end of 2017…
“The OECD composite leading indicator has been weakening consistently for the last year and now points unambiguously to a contraction ahead.
“Most of the world’s major economies outside the United States showed clear signs of slackening growth in the fourth quarter of 2018.
“Even in the United States, the Institute for Supply Management’s manufacturing index for December showed the sharpest deceleration in growth since the recessions of 2008 and 2001.
“Global trade volumes showed signs of slowing towards the end of 2018 after strong growth in 2017.
“Air freight through Hong Kong International Airport, the world’s busiest air cargo hub and a proxy for global trade, was down 1.6 percent year-on-year in the fourth quarter.
“Air freight volumes in Hong Kong were down by a massive 5 percent in December compared with the same month a year earlier, according to the Civil Aviation Department.
“Experience shows the economy is characterised by a significant number of positive feedback mechanisms which amplify booms and slumps.
“Expansions tend to accelerate as business investment, employment, incomes, consumer spending and equity prices reinforce each other.
“Once the economy starts to lose momentum, however, all these factors tend to interact with each other in the opposite direction to intensify the slowdown.
“A soft landing is still possible but a hard landing is more likely unless something happens to kickstart global growth.”
“The possibility of a global recession ranks as the top concern on the minds of corporate leaders as they head into 2019, according to a new survey of chief executives from the Conference Board, a business research group.
“A combination of the China trade war and government shutdown could be enough to tip the U.S. economy into recession this year, according to Torsten Slok, Deutsche Bank’s chief international economist. The stark warning comes amid emerging signs that the world’s biggest economy is slowing down as gauges of manufacturing and consumer sentiment have fallen in recent weeks.”
“Sales dropped by almost 11 percent, the biggest decline for any month since 2016, Redfin said. Previously hot metropolitan areas are cooling fast. Prices dropped 7.3 percent in San Jose, California.”
“Vancouver’s housing market is looking more fragile than Toronto a year after policy makers tightened mortgage lending to slow a boom… Sales in the west coast city plunged 32 per cent last year, driving benchmark prices down 6.5 per cent over the past six months, according to Canadian Real Estate Association data released Tuesday. Toronto also saw sales fall sharply, but by half as much as Vancouver.”
“A measure of Australian consumer confidence took a spill in January as respondents turned gloomy on the economy and their own finances at the start of the new year. Wednesday’s survey showed the Melbourne Institute and Westpac Bank index of consumer sentiment slid 4.7 per cent in January, from February… That was the sharpest monthly decline in over three years.”
“Japan’s core machinery orders slowed sharply in November in a sign corporate capital expenditure could lose momentum as a bruising U.S.-China trade war spills into the global economy.
“The slight 0.02 percent decline month-on-month in core machinery orders, considered a leading indicator of capital expenditure, was well below the median estimate for a 3.5 percent increase and marked a slowdown from a 7.6 percent expansion in October.”
“Singapore’s exports recorded their worst decline in more than two years in December as shipments of electronics and pharmaceuticals plunged, official data showed on Thursday. The unexpected decline comes despite ongoing trade talks between the United States and China to defuse trade tensions…
“Non-oil domestic exports in December fell 8.5 percent from a year earlier, data from the trade agency Enterprise Singapore showed…”
“The year-on-year growth of nominal GDP [for China] — or the economic expansion pace unadjusted for inflation — will slow by more than 2 percentage points this year, according to UBS Group AG, from the 2018 level hovering near 10 percent. That’s because the rapidly weakening factory inflation will weigh on the economy-wide price pressures.”
“The Chinese company that defaulted on a bond on Tuesday reported cash levels just four months ago that were enough to pay the debt 15 times over. Kangde Xin Composite Material Group Co., based in the eastern province of Jiangsu, failed to pay a 1 billion yuan ($148 million) local note due Jan. 15 due to a liquidity crunch, according to the company.
“Yet as of end-September, it had 15.4 billion yuan in cash and equivalents, more than double the amount of its short-term debt, according to regulatory filings.”
“Bank of England Governor Mark Carney on Wednesday likened the $2 trillion leveraged loan market to subprime mortgages that defaulted 10 years ago and triggered a global financial crisis, in a warning to British lawmakers. “We are concerned just because the pace of growth has been quite rapid for some time,” Carney told the lawmakers.”
“As a legion of heads of state and business leaders head to Davos for the annual World Economic Forum (WEF) next week, world affairs are as unpredictable and unstable as ever.
“In the 12 months since the last forum, global trade relations and diplomacy as well as domestic politics have been fractious, to say the least.”
“It’s been a decade since Congress approved a huge emergency package of spending projects, payments to individuals and tax cuts to stimulate a U.S. economy staggered by the 2008 recession…
“I was the U.S. budget director when President Barack Obama signed the stimulus legislation on Feb. 17, 2009 — I offer eight lessons based on recent history and amid fears that the next recession might not be far away:”
“Theresa May has pledged to face down a vote of no confidence in her government, after her Brexit deal was shot down by MPs in the heaviest parliamentary defeat of the democratic era.
“On a day of extraordinary drama at Westminster, the House of Commons delivered a devastating verdict on the prime minister’s deal, voting against it by 432 to 202.
“The scale of defeat, by a majority of 230, was greater than any seen in the past century, with ardent Brexiters such as Jacob Rees-Mogg and Boris Johnson walking through a packed division lobby cheek-by-jowl alongside passionate remainers.”
“The economic outlook for Europe and the world darkened after growth in Germany slowed sharply last year, hit by weaker exports to China and elsewhere, and softer demand at home.
“While Europe’s largest economy probably narrowly avoided a recession at the end of last year, according to the country’s statistical agency, weaker German growth is ringing alarm bells across the continent, where swaths of companies are bound to the German export machine.”
“News that the European Central Bank wants euro zone banks to set aside more money for their soured loans sank shares in Italian lenders and sparked a rebuke from one of the country’s top politicians on Tuesday.”
“Lenders in the United Arab Emirates will come under pressure this year as a property and retail slump take its toll. One of the country’s smallest banks is being bailed out, problem loans are expected to rise this year and lenders are exploring mergers to stay competitive.
“Slow property sales, higher interest rates and a rise in lending amid improved economic growth could mean provisions jump as much as a quarter, according to analysts.”
“…after a decade of near continual growth Hong Kong’s property market is about to join a global downturn that is buffeting markets including London, Vancouver, Sydney and Shanghai.”
“China’s economy is slowing. The downturn may be the result of recent events — the trade war with the U.S., or retrenchment in China’s real estate and infrastructure sectors. But it may also be the latest manifestation of a trend that began a decade ago. And it may signal that China’s entire system of authoritarian state capitalism is less effective than many had believed.
“Recent data suggest that consumption is falling, indicating rocky times ahead.”
“China’s GDP growth may be significantly slower than official estimates suggest and its economy more vulnerable to external shocks than widely believed, a global business think tank has warned… Economists in China and abroad have long suspected data is massaged upward, often noting that full-year gross domestic product hits Beijing’s pre-set targets with suspicious regularity.
“The governor of northeastern Liaoning admitted in 2017 that the industrial province had falsified data for years.”
“China’s central bank on Wednesday made its biggest daily net cash injection via reverse repo operations on record, more evidence that authorities are shifting to policy easing to counter a slowdown in the world’s second largest economy.”
“The partial government shutdown is inflicting far greater damage on the United States economy than previously estimated, the White House acknowledged on Tuesday, as President Trump’s economists doubled projections of how much economic growth is being lost each week the standoff with Democrats continues.”
“If Pacific Gas & Electric Co. follows through with its bankruptcy announcement, the country’s largest utility would record the third largest default in the U.S. investment-grade corporate bond market since 1998.”
“JPMorgan Chase & Co.’s bond traders just reported their worst quarter in a decade a day after Citigroup Inc. said it was also pummeled by market turmoil. Revenue from fixed-income trading, typically the biggest contributor to the company’s markets business, plunged 18 percent in the fourth quarter to the lowest since the depths of the financial crisis as wild markets kept clients on the sidelines.”
“…the Bank of Merrill Lynch Fund Managers’ Survey from January, which finds investors with the gloomiest outlook on corporate profits since 2008.
“A net 52% of investors expect global profits to deteriorate over the next year, a “major reversal” from just 12 months ago when a net 39% saw profits improving.
“The survey also saw the second-biggest two-month collapse on record in global inflation expectations, and the worst outlook on the global economy since July 2008…”
“According to the S&P/Experian Consumer Credit Default Indices, which the companies said in a press release represent a comprehensive measure of changes in consumer credit defaults, the composite rate rose six basis points from December to 0.89 percent. The bank card default rate rose 25 basis points to 3.34 percent, while the auto loan default rate jumped 10 basis points to 1.03 percent. The default rate on first mortgages was three basis points higher at 0.67 percent.
“What’s more, S&P Dow Jones Indices and Experian said that all five of the metropolitan statistical areas showed a higher default rate in December of 2018.”
“Global debt grew 3.9 percent in the third quarter of 2018 compared to a year earlier and was up 0.7 percent compared to the previous quarter, the Institute of International Finance said in a report on Tuesday…
“As a percentage of global gross domestic product, debt of non-financial corporations ticked up to 92 percent, the highest level on record, the report said.”
“As Mark Twain never said, “It ain’t what you don’t know that gets you into trouble. It’s what you think you know for sure that just ain’t so.”
“Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change.
“They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies that undermine the credibility of central bank independence, resulting in higher interest rates on “safe” advanced-country government bonds.”
“Fears are growing over the state of the global economy after China recorded a shock fall in exports, while European factory output declined by the biggest margin in almost three years.
“In a sign that the worldwide slowdown is gathering pace, official figures showed Chinese exports were down 4.4% in December – the largest fall since 2016 – on the back of faltering demand in most of its key markets. Imports fell 7.6% to reflect waning domestic demand.
“The unexpected downturn for the biggest global exporter of manufactured products came as eurozone industrial output shrank in November.
“The EU statistics office, Eurostat, estimated industrial production slipped 1.7% in November compared with the previous month, and 3.3% on the year, reflecting the struggles facing several European economies in recent months.”
“Germany’s economy witnessed lackluster growth in 2018, according to flash data released Tuesday, in line with expectations… Destatis noted that the German economy had grown for the ninth year in a row, “although growth has lost momentum.””
“A no-deal Brexit would be an economic and social “catastrophe”, a senior banking industry leader has warned. Stephen Jones said leaving the European Union (EU) without an agreement could lead to a 1930s-style economic depression, with widespread job losses, homeowners unable to afford their mortgages, and mass defaults on loans.”
“This week’s collapse of Greece’s coalition government comes at a at a delicate time for the country’s suffering financial sector.. Greece’s banks have survived the country’s economic depression but they have paid a heavy price: they are barely profitable … Not only is the eurozone economy slowing, but exports to Turkey have been hit by that country’s economic crisis. “
“Turkey’s calendar-adjusted industrial production index contracted for a third consecutive month in November and at an escalating pace of 6.5% y/y, data from national statistics office TUIK showed on January 14…
“Looking ahead to the likely December IP growth data, preliminary foreign trade figures indicated a prevailing weakness, Goksen also said.”
“The annual inflation rate in Tunisia reached a near-30-year high in 2018, prompting questions on the viability of the country’s financial policies… Experts said the inflation rate, combined with the rapidly declining value of the Tunisian dinar, blurred lines between lower and middle class and could fuel instability.”
“Hundreds of thousands of Afghans have returned in the last year of a severe economic crisis-ridden Iran in their home.
“According to the International organization for Migration (IOM), left 2018, more than 773.000 Afghans in Iran, which borders the war-torn country. The are much more than in 2017, as well as 500,000 Afghans from Iran have returned.”
“This financial year, 2018-19 could end up being the worst year for [India’s] farm incomes in almost two decades, government data indicates in a revelation that emphasises the gravity of the ongoing agrarian crisis.”
“As previous economic heavyweights like Turkey, Brazil and South Africa face crippling inflation amid recession in pockets of the globe, Argentina, one of the world’s southernmost states, is in the grip of a serious economic crisis…
“The Argentinian peso has plunged, resulting in shooting inflation and low purchasing power. It takes more than 1,000 pesos ($27) to take a taxi from the Ezeiza International Airport in Buenos Aires to the downtown of the capital, compared to only 300 pesos five years ago.”
“Venezuela is currently experiencing a major economic crisis: sustained hyperinflation, consecutive years of serious economic contraction, major shortages of basic goods and services… the risk is that escalation could lead to a catastrophic outcome.”
“Several people have been killed and some 200 arrested during protests in Zimbabwe, two days after the government raised the price of fuel in an attempt to tame the worst economic crisis in a decade.
“Police fired tear gas in the capital of Harare and second city Bulawayo, where protesters barricaded roads, burned tyres and chanted songs against President Emmerson Mnangagwa, who increased fuel prices in the hope of easing a currency shortage.”
“Despite more than a decade of efforts to rebalance the economy and wean itself off the stimulus introduced in the wake of the 2008 financial crisis, China remains addicted to ever-higher levels of debt and construction.”
“China on Tuesday signaled more stimulus measures in the near term as a tariff war with the United States took a heavy toll on its trade sector and raised the risk of a sharper economic slowdown…
“Some analysts believe China could deliver 2 trillion yuan ($296.21 billion) worth of cuts in taxes and fees, and allow local governments to issue another 2 trillion yuan in special bonds largely used to fund key projects.”
“The US Treasury Department keeps running into a big issue as it auctions off the swelling amount of new government debt: The market just isn’t that interested… So what does this all mean? Put simply, it suggests that demand for Treasurys may struggle to keep up as the US deficit continues to grow.”
“China’s export and import figures were much worse than expected in December, underscoring the rapid weakening of the Chinese economy…
“The December figures give the first indication of the full impact of the US-China trade war.
“Total exports fell to US$221.25 billion in December, down 1.4 per cent from November, and 4.4 per cent from the same month in 2017, according to data from China’s General Administration of Customs…
“Total imports fell to US$164.19 billion, a fall of 10 per cent from last month and down 7.6 per cent a year earlier… Analysts had expected a 4.5 per cent rise, according to the Bloomberg survey.
“The drop in imports is another bad sign for the Chinese economic outlook, indicating a rapid weakening of Chinese domestic demand.”
“As the global economic outlook darkens, American banks have an unenviable job: Convincing a jittery public that the US economy remains strong and can keep growing…
“Bank profits suffer when the economy stumbles and businesses are scared to borrow. They become especially vulnerable when a recession hits and some customers aren’t able to pay back loans.”
“TARP, the U.S. government bailout program born of the financial crisis a decade ago, lives on today as economists warn of a new recession. Congress authorized the Troubled Asset Relief Program in late 2008 to stabilize the financial system with up to $700 billion — later reduced to $475 billion. To date, about $450 billion in taxpayer money has been committed, either lent or directly invested under TARP to banks and corporations, according to Treasury Department data.”
“Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt… Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called “an ocean of debt.”
“The investment manager countered President Donald Trump’s claim that he’s presiding over the strongest economy ever. The growth is debt-based, he said.”
“In October last year the Bank’s financial policy committee, which monitors the health of the financial system, pointedly raised the spectre of the 2007-08 credit crunch. It said the “global leveraged loan market was larger than – and was growing as quickly as – the US sub-prime mortgage market had been in 2006”.”
“California’s largest utility… has been scrambling for five years to reduce fire risks. It has been overwhelmed by the threat’s severity and the challenge of shoring up thousands of miles of ageing power lines and cutting and trimming millions of trees in a service area larger than Florida…
“PG&E faces billions of dollars in legal claims, the specter of bankruptcy, a federal judge forcing his way into utility operations, the possibility state regulators will break it into pieces, and potential state criminal charges including homicide, due to its continued inability to stop the fires from starting. “It’s an organization facing collapse,” said Arthur O’Donnell, a safety supervisor at the California Public Utilities Commission until late last year. “There aren’t any silver bullets that can fix things quickly.””
“In Parliament, lawmakers are mired in gridlock over Britain’s departure from the European Union, with no clear path forward. In Washington, President Donald Trump stormed out of a meeting with congressional leaders who oppose his border wall, hardening a standoff that has shut down much of the government for longer than ever before.
“Two governments paralyzed. Two populist projects stalled. Two venerable democracies in crisis.”
“Uncertainty over Brexit and the economy have led demand for Britain’s financial services to shrink for the first time in five years, with no immediate sign of an improvement, a survey by business group CBI and PwC showed.”
“Deutsche Bank AG held frequent talks with the government and its main domestic competitor over the past months as concern mounted that Germany’s largest lender may not be able to emerge from its crisis without outside help.
“Representatives of Deutsche Bank had 23 discussions with officials since the new government was formed in March, most of them between Deputy Finance Minister Joerg Kukies and Chief Executive Officer Christian Sewing as well as supervisory board Chairman Paul Achleitner, according to a Finance Ministry letter seen by Bloomberg.”
“Italy’s European Affairs Minister Paolo Savona was on the wires last minutes, via Reuters, noting that the European Union (EU) economic crisis is already underway…
“And so it begins. As we move towards the European Parliament elections in May, expect Italy to head the vocal tirade against the current administration. The rhetoric will only ramp up as populists look to make their voices heard ahead of votes.”
“Following a painful 2018 that left Argentina in recession and forced into unpopular austerity measures, President Mauricio Macri faces an uphill battle in his bid for re-election in October…
“…inflation initially calculated at 10 percent finished the year at 48 percent while an economy expected to grow by 3.5 percent shrunk by 2.7 percent, according to the World Bank.”
“[Australia’s] banks continue to drive down saver rates below the rate of inflation, despite increasing costs for borrowers, forcing many savers to take bigger risks to maintain income, according to analysis of rates, investment and spending.
“Saver rates will continue to come under pressure as lenders are forced to put aside more capital by regulators, wholesale rates rise and competition increases for new mortgage borrowers with lower introductory rates and bigger discounts, according to analysis.”
“Commuters were stranded in Zimbabwe’s two main cities on Monday as angry protesters reacting to the weekend more than doubling of fuel prices, burned tyres and used rocks to barricade roads and blocked buses from carrying passengers.
“President Emmerson Mnangagwa on Saturday announced a more than 100% rise in the price of petrol and diesel in a move to improve supplies as the country struggles with its worst fuel shortages in a decade.”
“Venezuelan intelligence agents have released opposition leader and congress chief Juan Guaido after briefly detaining him on the way to a political rally, a congressional official has said.
“A video posted on social media appears to show the moment Guaido was pulled from a car on a highway by the Bolivarian National Intelligence Service (Sebin) on Sunday as he was travelling out of the capital, Caracas.”
“Trend-following investment strategies are computerized trading algorithms that base their buying and selling activity on asset price momentum. Trend-following algorithms “generally try to ride markets when they move strongly in one direction,” is how the Journal puts it.
“Trading algorithms in general have been blamed for increasing market volatility, and for making market declines more severe by creating self-reinforcing waves of selling.”
“British lawmakers are set to vote on Prime Minister Theresa May’s much-maligned Brexit deal on Tuesday, with less than three months to go before the U.K. is set to leave the European Union.
“Remarkably, May’s template to exit the bloc faces virtually certain defeat.
“That leaves the prospect of a complete collapse of government, a disorderly exit from the bloc or even the entire Brexit process being scrapped altogether over the coming weeks.”
“France’s response to “yellow vest” protests could be a turning point for euro zone bond markets if it kicks off an era of increased public borrowing in the bloc and loads additional debt on to a market already nervous over the removal of ECB stimulus.”
“Italy’s far-right interior minister, Matteo Salvini, has said that Italy and Poland could trigger a “European spring” that could break the dominant “Germany-France axis” as he strives to forge far-right alliances before the European parliamentary elections in May.”
“According to retail sales data released by FADA, passenger vehicle sales in India during the first three quarters of the current fiscal (April to December) declined 2% year-on-year…”
“China is adding more challenges to the global economy this year, beyond the trade conflict that’s rattling financial markets.
“Economists now see the threat of deflation in the manufacturing nation after producer price inflation slowed sharply in December… That would not only squeeze corporate profitability at home, but would also put pressure on global price gains…”
“Australia’s construction activity has slowed to the weakest in five-and-a-half years as tighter lending conditions and falling prices weigh on the nation’s housing market.
“The downturn in Sydney’s property market is set to deepen as tighter lending standards and the worst slump in values since the late 1980s cause nervous buyers to sit on the sidelines. Apartment approvals fell the most in a decade in November in another sign of investors pulling back.”
““Most of the attacks along the coast of Trinidad occur just before sunset, so that pirates under cover of darkness can disappear without being disturbed,” testify the victims of this type of theft…
““Sometimes, they rob our people, but in other cases they are kidnapped in Venezuela and a ransom is demanded for their freedom, ” said Esook Ali, leader of the local fishing association, to The Telegraph.”
“This time I think bonds will peak at around $8 trillion and then lose about $3 trillion in value. That’s 38 percent. Failing U.S. subprime loans triggered the last global debt crisis. This next one is likely to come from failing emerging market corporate debts, followed by the U.S. and developed country defaults and bond devaluations…”
“…investment-grade and high-yield corporate bonds have registered over US$65 billion net outflow in the 10 weeks to Dec. 31. That marks a record high. In other words, investors are dumping corporate bonds.
“Many countries, especially emerging markets, have posted staggering credit expansion after the 2008 financial crisis.
“The credit to private non-financial sectors in developed and developing markets surged above US$160 trillion in the first quarter of last year. It accounts for 244.9 percent of GDP. Both figures hit a record high. That shows private non-financial sectors are having extremely high leverage, and the bubble is building up.”
“Cracks are already forming. In December, borrowing in the high-yield bond market came to a standstill. Deals in the leveraged loan market are also delayed from a lack of interest from mutual funds and collateralized loan obligation managers, the largest buyers of leveraged loans. These events signal trouble ahead for highly indebted companies seeking more financing.
“Wall Street banks have significant exposure to corporate debt… In a crisis, these exposures could serve as a channel for contagion in a highly interconnected financial system dominated by large banks.”
“The US government has been partially shuttered since late December as President Donald Trump has refused to sign a budget agreement unless Congress agrees to allocate US$5 billion for a border wall. About 800,000 federal workers, including air traffic controllers and members of the Coast Guard, have been without pay for three weeks.”
“Federal Reserve Chairman Jerome Powell is concerned about the ballooning amount of United States debt… Wall Street’s “bond king” and respected financial prognosticator Jeffrey Gundlach said in December that the Fed seems to be on a “suicide mission,” raising rates while the government deficit increases as a share of GDP. Normally when the deficit is expanding, the Fed would be lowering interest rates.”
“The odds of a recession have grown to the highest level in seven years, according to a monthly poll by The Wall Street Journal. Economists surveyed by the Journal are seeing on average a 25 percent chance of a recession within the next 12 months… The outlook for 2020 is even dimmer with 56.6 percent of the economists foreseeing a downturn to start in the presidential election year.”
“As far as I know, your work is unique in pulling together stories from all over the world. Very sobering but a better and more complete view. Terrific and necessary work. Thank you!” – Simon
“With the inundation of so much depressing news, Justin Panopticon presents it in a succinct format that one can quickly go thru and see the big picture of climate and economics/politics to stay current and if a particle topic is of interest one can delve into the details… I try never to miss any of his posts…I am a Patreon of his work.”
– Karina S.
Search
About This Site
Weekday updates on both climate change and the global economy. Stay current with what’s happening around the world with a quick scan of top news.
“If there’s a serious recession on the horizon, the world’s central banks may have trouble fighting it.
“The European Central Bank is expected to wait until the fourth quarter to raise its deposit rate, later than thought just a month ago, according to economists in a Reuters poll, who also said the chances of a euro zone recession have grown… 
“Borrowing on credit cards is expected to plunge to the lowest levels since 2007 in the three months before Brexit, according to the Bank of England, in another indication of stresses facing the UK economy.
“Nearly half of UK consumers expect 2019 to bring a financial crash that is worse than 2008, according to wealth management firm Spearvest. 
“Germany is examining whether it can fix its two largest lenders — Deutsche Bank AG and Commerzbank AG — by combining them into a national champion that’s once again able to challenge foreign rivals. History suggests it’s a recipe for more trouble.
“What goes widely unnoticed is that China is already in crisis. No, it’s not the sort of hold-on-for-dear-life collapse the US had in 2008 or the surprising, ferocious meltdowns the Asian Tiger economies experienced in 1997. 
“The Reserve Bank [of Australia] could be cutting interest rates within months amid new warnings house prices in Sydney and Melbourne could fall by more than 20 per cent and pull down the national economy… 
“Security forces patrolling American waters and safeguarding American ports of entry are now working without paychecks…”
“Two million people are internally displaced, corruption is widespread and mismanagement rife. 
“Obtaining information about this week’s crackdown in Zimbabwe has been greatly complicated by the internet shutdown imposed by the government on Tuesday…
“Global growth is slowing and the world economy is headed for a recession in 2019 unless something happens to give it renewed momentum.
“The possibility of a global recession ranks as the top concern on the minds of corporate leaders as they head into 2019, according to a new survey of chief executives from the Conference Board, a business research group.
“Home sales in the US slumped in December… 
“Japan’s core machinery orders slowed sharply in November in a sign corporate capital expenditure could lose momentum as a bruising U.S.-China trade war spills into the global economy. 
“Singapore’s exports recorded their worst decline in more than two years in December as shipments of electronics and pharmaceuticals plunged, official data showed on Thursday. The unexpected decline comes despite ongoing trade talks between the United States and China to defuse trade tensions…
“The Chinese company that defaulted on a bond on Tuesday reported cash levels just four months ago that were enough to pay the debt 15 times over. Kangde Xin Composite Material Group Co., based in the eastern province of Jiangsu, failed to pay a 1 billion yuan ($148 million) local note due Jan. 15 due to a liquidity crunch, according to the company. 
“As a legion of heads of state and business leaders head to Davos for the annual World Economic Forum (WEF) next week, world affairs are as unpredictable and unstable as ever. 
“It’s been a decade since Congress approved a huge emergency package of spending projects, payments to individuals and tax cuts to stimulate a U.S. economy staggered by the 2008 recession…
“Theresa May has pledged to face down a vote of no confidence in her government, after her Brexit deal was shot down by MPs in the heaviest parliamentary defeat of the democratic era.
“The economic outlook for Europe and the world darkened after growth in Germany slowed sharply last year, hit by weaker exports to China and elsewhere, and softer demand at home. 
“Lenders in the United Arab Emirates will come under pressure this year as a property and retail slump take its toll. One of the country’s smallest banks is being bailed out, problem loans are expected to rise this year and lenders are exploring mergers to stay competitive. 
“China’s economy is slowing. The downturn may be the result of recent events — the trade war with the U.S., or retrenchment in China’s real estate and infrastructure sectors. But it may also be the latest manifestation of a trend that began a decade ago. And it may signal that China’s entire system of authoritarian state capitalism is less effective than many had believed.
“China’s central bank on Wednesday made its biggest daily net cash injection via reverse repo operations on record, more evidence that authorities are shifting to policy easing to counter a slowdown in the world’s second largest economy.”
“…the Bank of Merrill Lynch Fund Managers’ Survey from January, which finds investors with the gloomiest outlook on corporate profits since 2008. 
“According to the S&P/Experian Consumer Credit Default Indices, which the companies said in a press release represent a comprehensive measure of changes in consumer credit defaults, the composite rate rose six basis points from December to 0.89 percent. The bank card default rate rose 25 basis points to 3.34 percent, while the auto loan default rate jumped 10 basis points to 1.03 percent. The default rate on first mortgages was three basis points higher at 0.67 percent.
“Global debt grew 3.9 percent in the third quarter of 2018 compared to a year earlier and was up 0.7 percent compared to the previous quarter, the Institute of International Finance said in a report on Tuesday… 
“As Mark Twain never said, “It ain’t what you don’t know that gets you into trouble. It’s what you think you know for sure that just ain’t so.” 
“Fears are growing over the state of the global economy after China recorded a shock fall in exports, while European factory output declined by the biggest margin in almost three years.
“A no-deal Brexit would be an economic and social “catastrophe”, a senior banking industry leader has warned. Stephen Jones said leaving the European Union (EU) without an agreement could lead to a 1930s-style economic depression, with widespread job losses, homeowners unable to afford their mortgages, and mass defaults on loans.”
“Turkey’s calendar-adjusted industrial production index contracted for a third consecutive month in November and at an escalating pace of 6.5% y/y, data from national statistics office TUIK showed on January 14… 
“Hundreds of thousands of Afghans have returned in the last year of a severe economic crisis-ridden Iran in their home. 
“As previous economic heavyweights like Turkey, Brazil and South Africa face crippling inflation amid recession in pockets of the globe, Argentina, one of the world’s southernmost states, is in the grip of a serious economic crisis… 
“Several people have been killed and some 200 arrested during protests in Zimbabwe, two days after the government raised the price of fuel in an attempt to tame the worst economic crisis in a decade. 
“China on Tuesday signaled more stimulus measures in the near term as a tariff war with the United States took a heavy toll on its trade sector and raised the risk of a sharper economic slowdown… 
“While many investors are fretting over what stage of the business cycle we are in, the global monetary system is collapsing — with a whimper… 
“China’s export and import figures were much worse than expected in December, underscoring the rapid weakening of the Chinese economy…
“As the global economic outlook darkens, American banks have an unenviable job: Convincing a jittery public that the US economy remains strong and can keep growing… 
“Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt… Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called “an ocean of debt.” 
“California’s largest utility… has been scrambling for five years to reduce fire risks. It has been overwhelmed by the threat’s severity and the challenge of shoring up thousands of miles of ageing power lines and cutting and trimming millions of trees in a service area larger than Florida…
“In Parliament, lawmakers are mired in gridlock over Britain’s departure from the European Union, with no clear path forward. In Washington, President Donald Trump stormed out of a meeting with congressional leaders who oppose his border wall, hardening a standoff that has shut down much of the government for longer than ever before. 
“Deutsche Bank AG held frequent talks with the government and its main domestic competitor over the past months as concern mounted that Germany’s largest lender may not be able to emerge from its crisis without outside help.
“Italy’s European Affairs Minister Paolo Savona was on the wires last minutes, via Reuters, noting that the European Union (EU) economic crisis is already underway… 
“Following a painful 2018 that left Argentina in recession and forced into unpopular austerity measures, President Mauricio Macri faces an uphill battle in his bid for re-election in October… 
“[Australia’s] banks continue to drive down saver rates below the rate of inflation, despite increasing costs for borrowers, forcing many savers to take bigger risks to maintain income, according to analysis of rates, investment and spending. 
“Commuters were stranded in Zimbabwe’s two main cities on Monday as angry protesters reacting to the weekend more than doubling of fuel prices, burned tyres and used rocks to barricade roads and blocked buses from carrying passengers. 
“Venezuelan intelligence agents have released opposition leader and congress chief Juan Guaido after briefly detaining him on the way to a political rally, a congressional official has said. 
“Trend-following investment strategies are computerized trading algorithms that base their buying and selling activity on asset price momentum. Trend-following algorithms “generally try to ride markets when they move strongly in one direction,” is how the Journal puts it.
“British lawmakers are set to vote on Prime Minister Theresa May’s much-maligned Brexit deal on Tuesday, with less than three months to go before the U.K. is set to leave the European Union.
“France’s response to “yellow vest” protests could be a turning point for euro zone bond markets if it kicks off an era of increased public borrowing in the bloc and loads additional debt on to a market already nervous over the removal of ECB stimulus.”
““The repercussions and consequences of the economic crisis today are at their highest,” said Ali Hassan Khalil, Lebanon’s Finance Minister.”
“China is adding more challenges to the global economy this year, beyond the trade conflict that’s rattling financial markets. 
“Australia’s construction activity has slowed to the weakest in five-and-a-half years as tighter lending conditions and falling prices weigh on the nation’s housing market. 
““Most of the attacks along the coast of Trinidad occur just before sunset, so that pirates under cover of darkness can disappear without being disturbed,” testify the victims of this type of theft…
“…investment-grade and high-yield corporate bonds have registered over US$65 billion net outflow in the 10 weeks to Dec. 31. That marks a record high. In other words, investors are dumping corporate bonds. 
“Cracks are already forming. In December, borrowing in the high-yield bond market came to a standstill. Deals in the leveraged loan market are also delayed from a lack of interest from mutual funds and collateralized loan obligation managers, the largest buyers of leveraged loans. These events signal trouble ahead for highly indebted companies seeking more financing.
“The US government has been partially shuttered since late December as President Donald Trump has refused to sign a budget agreement unless Congress agrees to allocate US$5 billion for a border wall. About 800,000 federal workers, including air traffic controllers and members of the Coast Guard, have been without pay for three weeks.”
“The odds of a recession have grown to the highest level in seven years, according to a monthly poll by The Wall Street Journal. Economists surveyed by the Journal are seeing on average a 25 percent chance of a recession within the next 12 months… The outlook for 2020 is even dimmer with 56.6 percent of the economists foreseeing a downturn to start in the presidential election year.”