“On Thursday, the British government will begin to publish eighty-four guidelines, for civilians and businesses alike, setting out what will happen if the negotiations over the United Kingdom’s departure from the European Union end in failure. Since the vote to leave the E.U., in 2016, the prospect of a “no deal” Brexit has always been the nightmare scenario. Forty-six years of deep economic, political, and social coöperation would end—papers flying, the door slamming, lights out—at midnight, Brussels time, on March 30, 2019…
“If the U.K. and the E.U. can’t agree, then economic relations between the two sides will default to the rules of the World Trade Organization. Britain will become just another “third country” in its dealings with the bloc, subject to tariffs and border checks. The W.T.O. regime hardly covers services, which make up eighty per cent of the British economy.
“Meanwhile, four decades of intricately devised shared regulations—for drugs, citizens’ rights, security, food standards, the Internet—will cease to function from one minute to the next. A British airline will not be licensed to land a plane in Paris. An insurance contract underwritten in London may no longer be valid in Greece. Three million E.U. citizens living in Britain would have every cause to panic. Food prices will rise by an estimated twenty per cent, and financial markets will turn red, as the U.K. immediately tumbles out of sixty-three trade agreements that the E.U. holds with other nations around the world.
“Earlier in the summer, the Prime Minister’s office was forced to deny that, in the event of no deal, the Army would be deployed. Last week, a leaked letter from NHS Providers, which represents ambulance services and hospitals, warned that a collapse in the talks could undermine “the entire supply chain of pharmaceuticals” in Britain. “Public health and disease control co-ordination could suffer.”
“…We are always warned. We see the calamity coming. But we do not believe it until it is here.”
“All sections of UK society now think that it is more likely than not the country will crash out of the EU without a trade deal, a new survey has revealed. Every demographic, employment status and political group believes a no-deal Brexit is the likely outcome as negotiations continue to stall, KPMG found.”
“Italy has now turned into the weak link of the euro zone and market participants shouldn’t rule out the possibility of a debt crisis further down the road, one economist told CNBC Wednesday. Traders are increasingly wary of developments in Italy, where a recently established populist coalition has vowed to spend more, despite carrying the second largest public debt pile in the euro area.”
“High volumes, high yields, wide spreads — these are the ingredients for a stormy autumn in Italian markets.”
“The crisis has cost Greece 25 per cent of its gross domestic product — unprecedented for any European nation during peace time — the unemployment rate sits at almost 20 per cent, even after hundreds of thousands of people have migrated, and national debt is about 180 per cent. Even without its lending arrangements in place, Greece is not totally free from the creditors.”
“The amounts are not small. Turkish borrowers owe Spanish banks in excess of $82 billion, while French banks are owed $38.4 billion and Italian banks are owed $17 billion. Turkey’s private-sector debt is substantial – within a year it must pay $220 billion to service this debt. An inability to make these payments as well as a further collapse of the lira could set off a crisis in Europe, which would then have an impact on the global financial markets.”
“Sudan’s central bank has attempted to tighten its control of government finances, despite still not announcing a replacement for its late governor, who died in June. The Central Bank of Sudan has also tried to cut the amount of currency in circulation as the country’s economic crisis deepens.”
“Nigeria is badly divided and it needs a unifier and a bridge builder. Nigeria’s economy needs to be rescued from complete collapse.”
“A top US policy think tank has warned that South Africa is on the path to a Zimbabwe-style land disaster and has called on US President Donald Trump to take action.”
“The Trump administration’s latest round of tariffs on Chinese goods kicked in Thursday, drawing immediate retaliation from Beijing.”
“In the current quarter, the U.S. economy was forecast to grow 3 percent and then 2.7 percent in the next, a slight upgrade from the previous poll. But the short-term boost to growth from those enormous tax cuts was expected to wane. Economists trimmed their growth projections across most quarters next year leaving the outlook broadly unchanged and vulnerable to the trade spat with China.”
“Concern about the political future of President Donald Trump following the plea deal of Michael Cohen and the guilty verdict of Paul Manafort may put the dollar’s ascent in jeopardy, analysts say.”
“Federal Reserve officials had a lengthy discussion in early August of what to do if they are forced to push interest rates back down to zero in the next recession, according to minutes of their meeting released Wednesday. Officials said there was a “meaningful risk” rates could go back to zero during the next decade.”
“…there are many people wondering just what will derail [the current economic recovery], given that at some point it will end. My bet for the past few years has been that it will probably be the result of an oil price spike… I also think that… there [is] another major candidate, namely rising interest rates, which might in fact lead to a new global economic crisis, which could be far worse than the last one.”
“The delinquency rate on credit-card loan balances at commercial banks other than the largest 100 – so at the nearly 5,000 smaller banks in the US – rose to 6.2% in the second quarter. This exceeds the peak during the Financial Crisis by a full percentage point and was up from 4.0% a year ago.”
“Record levels of corporate and household debt, combined with the prospect of rising interest rates, are putting the [global economy] on a knife’s edge, warns Jamieson Coote Bonds director of investment, research and strategy Paul Chin, who is also concerned about the prospect of ‘contagion’ from the collapse of the Turkish lira last week.”
“Ten years ago, hubristic Wall Street geniuses came this close to destroying the global economy, saved largely by the Fed feeding trillions of dollars into banks in the U.S. and around the world.
“Why it matters: This time, unlike in 2008 and 2009, it may be that no one comes to the rescue, given new U.S.-China tensions, frayed trans-Atlantic relations, and Trump Administration hostility to multi-lateral actions.
“The 2008 financial crisis is not really over: Even as the U.S. stock market bull run made history today, the crash continues to reverberate in the form of still-recovering economies and massive global distrust in institutions.”
Read yesterday’s ‘Economy’ thread here.
Full-blown trade war could bring about a global depression or hot war:
“President Trump appears to be sincere and determined in his intention to bring down the U.S.-China trade deficit, and he’s probably willing to hold China’s feet to the fire to accomplish his goal.
“China, however, really can’t afford to meet Trump’s demands, Duncan noted, and has to fight back, driving the likelihood that the trade war’s seriousness escalates further.
“For one, China’s economy is already in a crisis to begin with, he said, and it is probably in the greatest economic bubble in history. This happened because China has an export-led strategy since the 1980s, that saw total investment skyrocket, leading to tremendous excess capacity across every industry in China…
“”One world is just not big enough to absorb [or sufficiently energy-rich to afford] everything that China can produce,” Duncan said. “It’s very difficult to see how China is going to grow as matters are now, even without a trade war with the U.S. If we bring in a trade war … (where) President Trump has demanded that China reduce its trade surplus with the U.S. by $200 billion a year. … This would be enough to tip China’s already fragile economy into a very severe economic downturn. There’s no possibility that China is going to agree. That’s what makes this crisis so serious.”
“A protracted trade war between the United States and China would likely represent a major turning point in history, Duncan warned.
“It could kill China’s economic rise and even trigger an economic crisis, similar to what we saw in Japan after 1998.
“A serious, prolonged trade war would also do a great deal of damage to the United States economy, Duncan noted. Once the U.S. started running large trade deficits with other countries in the early 1980s, inflationary pressures were dramatically reduced due to two primary factors: cheaper goods and cheaper workers, particularly from China, Taiwan, and other emerging markets.
“As the inflation rate came down, interest rates fell from double-digit levels, making credit and borrowing more affordable. Consequently, this led to a multi-decade, credit-led economic boom in the U.S. and other nations as well.
“Duncan warns that a full-blown, all-out trade war between China and the U.S. would change this dramatically… and that investors don’t quite understand the risks that are at stake.
“If we see President Trump put 25 percent tariffs on everything imported from China, the inflation rate is likely to spike to 8 or 10 percent, and interest rates will likely shoot higher to around 13 percent, Duncan warned.
“Such a scenario could potentially throw the world into a new Great Depression and even into outright war, said Duncan.
“”If interest rates spike higher, that would, of course, make credit much less affordable,” Duncan said. “Rather than driving economic growth through credit expansion, we would see extreme credit contraction. The credit contraction alone would be enough to throw the U.S. into severe recession.”
“In addition, higher interest rates would cause the stock market and property market to crash, Duncan added, and we would experience an extreme negative wealth effect that would also by itself throw the U.S. into a severe recession.
“”Combined, the crashing asset prices and the contract of credit would be enough to throw the U.S. into a depression, most probably,” Duncan said.”
“A number of U.S companies have said increased tariffs hurt their businesses and increase prices for consumers. “At the end of the day you become less efficient economically and therefore everybody will somehow suffer from it,” Pesaran said.”
“Australia risks getting caught in the crossfire as the world’s two biggest economies move ahead with tariffs on large swathes of each other’s exports in a dispute that shows little sign of ending anytime soon… Australia thrives on selling goods to countries around the world — particularly to China, which sucks up about a third of Australian exports every year.”
““[China’s] Local government officials never worry about repaying debts, they only worry that no one is lending them money,” Yin said at last year’s NPC gathering. “Part of the reason was that all local governments are part of a centralized authority that will eventually be bailed out.””
“When Federal Reserve chair Jay Powell meets colleagues and counterparts at Jackson Hole this week, investors’ attention will focus on how aggressively he plans to pursue his dual tightening policy. Fed officials are signalling at least five interest rate rises in the next 15 months…
“Since the financial markets of emerging Asia were the biggest beneficiaries of quantitative easing, why wouldn’t they be the victims of the reversal of that policy? The fact that both the US and China are committed to deleveraging is not a good thing for global liquidity.
“Each time the central banks tried to unwind their QE programmes over the past nine years, there have been significant dislocations.”
“The US Treasury has imposed fresh sanctions against Russian actors in connection with the Kremlin’s aggressive cyber attacks. The additional sanctions have been made to “disrupt Russian efforts to circumvent our sanctions”, said US Treasury Secretary Steven Mnuchin.”
“Iran’s unemployment rate is about 12 percent, with over three million people unable to find jobs. There is also growing numbers of the so-called “working poor”, who are struggling to survive rising living costs as US sanctions worsen economic crisis.”
“At major produce market Quinta Crespo, some stands were closed. Some employees were unable to get to work because they could not find public transportation, which has been in steady decline for months due to lack of auto parts… Businesses were largely closed in the second-largest city, Maracaibo, which has suffered months of prolonged power outages, as well as in the smaller cities of Punto Fijo and Valencia. Banks had long lines outside as people sought to withdraw the newly released bills. The collapse of [Venezuela’s] once-booming economy has fueled hunger and disease, spurring an exodus of migrants to nearby countries.”
“The US stock market climbed to its highest ever level in afternoon trading in New York as it closed in on the longest bull run ever. The benchmark US index the S&P 500 has surged 320% since its crisis lows in March 2009. The nine-year rally has been underpinned by ultra low interest rates and central banks’ quantitative easing programmes, earning it the nickname of the most hated bull market on Wall Street.”
“…nobody expects economic models to predict crises, future prices and recessions with total accuracy. But at least they should be able to explain the basic functioning of the economy… most tenured economics professors keep teaching the same simplistic, faith-based, empirically challenged models, combined with the belief that almost anything can be explained with a linear regression. So 10 years after Lehman, much remains to be explained and understood.”
“As we learned in the GFC, poor vetting of borrowers can lead to repayment problems. And in a world where loans again are increasingly repackaged into structured securities and sold to other investors, the dominoes again are lining up for a potential fall.”
“…[US] consumer credit outstanding is now 45% higher than its 2008 peak.”
“A decade ago, the imploding housing market wreaked havoc on the U.S. economy, driven by a distinct set of market conditions that have been widely studied and discussed by policymakers and pundits alike. In 2018, similar conditions are surfacing in the auto lending market. Together, these disturbing trends raise questions about the auto finance industry’s future and should prompt discussion about how to prepare for a potential crisis.”
Read yesterday’s ‘Economy’ thread here.
“Thousands of Venezuelans fleeing the economic and humanitarian crisis roiling their homeland are facing increasing hostility from their South American neighbors.
“Stricter border rules and mob violence have greeted some migrants as they look for refuge from the chaotic situation in Venezuela.
“The mass exodus is ratcheting up tensions in countries such as Peru, Ecuador and Brazil even as Venezuelan President Nicolas Maduro announces the introduction of “a magic formula” to get his country back on track.”
“Hyperinflation is the term used to describe prices spiralling out of control, accompanied by plunging currency values – leading consumers to require wheelbarrows full of money to buy everyday essentials.”
“Brazil’s far-right candidate Jair Bolsonaro holds a solid lead in the race for October’s presidential election in a new survey on Monday by pollster Ibope… The Brazilian real fell to its weakest in two years against the dollar after the polls showed Lula’s strong support and investors’ favourite Alckmin trailing in the field of main candidates.”
“South Africa’s state-owned Land Bank said on Monday a plan to allow the state to seize land without compensation could trigger defaults… President Cyril Ramaphosa announced on Aug. 1 that the ruling African National Congress (ANC) is forging ahead with plans to change the constitution to allow the expropriation of land without compensation, as whites still own most of South Africa’s land more than two decades after the end of apartheid…”
“During my last appearance on CNBC, before I was banned several years ago, I warned that the removal of massive and unprecedented monetary stimuli from global central banks would have to be done in a coordinated fashion. Otherwise, there would be the very real risk of currency and debt crises around the world. However, coordination among central banks is not what is happening. The Fed is miles ahead in its reversal of monetary stimulus…”
“…current trends will continue to play out, and Turkey will likely experience even higher inflation, bankruptcies, soaring borrowing costs, more debt and lower growth.”
“An unidentified gunman fired six shots at the US Embassy in Ankara, Turkey, early Monday morning local time. No one was injured in the shooting, but the incident has shaken up both countries, which are engaged in a bitter diplomatic fight over a detained US pastor.”
“…residents and businesses across the Gulf [are] seeing budgets tighten and numbers fall, as a combination of sustained low oil and gas prices and a jumping cost of living hit pockets. Economic growth has slowed or stopped, public debt has been rising and political uncertainty has been clouding the future, with conflict, sanctions and blockades disrupting regional businesses.”
“Iran’s oil minister said on Monday that France’s oil giant Total SA has officially pulled out of Iran after cancelling its $5 billion, 20-year agreement to develop the country’s massive South Pars offshore natural gas field over renewed U.S. sanctions.”
“If India’s banking sector is in a mess, it is not just the lenders who are to blame. The government and the judiciary, too, have had a role in the industry’s massive bad-loan problem, believes Rajnish Kumar, chairman of India’s largest bank, the State Bank of India.”
“Consumer borrowing is accelerating significantly in Thailand and around a quarter of consumers are having trouble making repayments on their debts, with credit cards and car loans the main areas of concern, according to an FT Confidential Research survey.”
“The immediate fate of emerging markets and the global credit system hangs on a word of comfort from Jay Powell at this week’s conclave of central bankers at Jackson Hole. A chorus of analysts warns there will be serious trouble if the new chairman of the Federal Reserve ignores the gathering storm and sticks doggedly to the current path of interest rate rises and quantitative tightening.”
“China’s hot real estate market remains a challenge for authorities trying to maintain stable economic growth in the face of trade tensions with the U.S. In fact, property is the country’s biggest risk in the next 12 months, much greater than the trade war, according to Larry Hu, head of greater China economics at Macquarie.”
“President Donald Trump downplayed expectations for this week’s trade talks between US and Chinese officials during an interview Monday and didn’t set a timetable for the end of the trade war with China. During an interview with Reuters, Trump said he did not “anticipate much” would come of the trade talks.”
“Excessive leverage, which was at the root of the financial crisis in 2008 as well as the Asian financial crisis in 1997-1998, has resurfaced in the U.S. market. Leveraged loan volumes are setting new records and nearing $1.4 trillion, making it larger than the $1.3 trillion high-yield bond market.”
“Student loans are now the second-largest category of household debt in America, topping $1.4 trillion and trailing only mortgages at $9 trillion. And while Korn Ferry puts the average starting salary for a 2018 college graduate at $50,390, up 2.8 percent from 2017, the just-released July Consumer Price Index report shows the inflation rate rose 2.9 percent over the last 12 months. Does the phrase “treading water” come to mind?”
“It is not just Germany’s economy showing signs of fatigue, as Europe’s recovery is also looking more frayed around the edges these days. The European Central Bank’s super-stimulus programme will soon end and add to the gloom.”
“British households owe almost £19bn in utility bills, missed council tax payments and overpaid benefits, according to figures revealing a hidden mountain facing the country. Putting an estimate on the overall amount owed by people falling behind on essential bills for the first time, the estimate from Citizens Advice comes as UK households are under increasing financial pressure.”
“Though [Greece] is emerging from the bailout program, it remains beholden to its euro zone creditors and the huge loans they have made. These account for the lion’s share of its towering public debt which, at 180 percent of GDP, is the highest in Europe.”
“Italy’s sovereign debt may swell by as much as €9.4 billion if the government goes ahead with plans to nationalise the toll roads run by Atlantia’s unit Autostrade per l’Italia… Autostrade reported €9.4 billion of net debt last year in its financial report. A large bill for the government could prompt another clash with the European Union, which is already concerned about the impact the populists’ fiscal and spending plans could have on Italy’s budget.”
“A new survey reveals that a sizeable portion of auto industry suppliers are expressing concerns regarding a potential Tesla bankruptcy. In a survey of members of the Original Equipment Suppliers Association’s council, obtained by the Wall Street Journal, eight out of 22 respondents — more than one in three — said they were worried about Tesla filing for bankruptcy. Additionally, 18 of the 22 respondents reportedly said in the survey that they believe Tesla to now be a financial risk to their companies.”
Read yesterday’s ‘Economy’ thread here.
“Ten years later, the crisis still essentially determines how the financial system works, thanks to the political decisions and interventions by central banks in response to it. There has been no “return” to normal…
“The supply of US dollars funneled into the global finance system in response to the crisis partly ended up in emerging markets. In recent years, many developing countries used the low rates that followed the crisis to gorge on dollar-denominated debt. The impact of that can be seen today as the US dollar rises and investors wonder if these countries will be able to repay all the debt they’ve accrued. It’s bringing down currencies as far flung from each other as Turkey and Indonesia.”
“Although there has been a lot of recovery from the 2008 financial crisis there are still many countries with fragile economies. Argentina has 29% inflation and 9.1% unemployment. South Africa has 27% unemployment and there were predictions that some cities were on the brink of collapse. Turkey’s currency has lost nearly 40% of its value against the dollar this year. Turkey has 9.6% unemployment and 12.8% inflation.”
“S&P reduced Turkey’s foreign-currency rating to four notches below investment grade at B+ from BB-, on par with Argentina, Greece as well as Fiji. Moody’s lowered its grade to Ba3 from Ba2, three notches below investment grade. The ratings companies said the weak currency, runaway inflation and current-account deficit are Turkey’s key vulnerabilities.”
“Turkey’s numerous large companies and even the Ankara government are struggling to service their overseas debts. While corporate and government revenues are denominated in fast-depreciating lira, a high share of debt interest payments must be made in rapidly rising dollars – the currency movements sending the real cost of such payments spiralling upward.”
“With interest rates sky-high and the economy heading for recession, Argentina’s President Mauricio Macri is running short of options to stem a slide in the peso, economists say, leaving the battered currency at the mercy of volatility in emerging markets.”
“The rupee’s plunge to a record low has worried a wide cross-section of India’s society… The 9.3 per cent fall in the rupee this year has already led to a surge in local prices of goods with an imported component.”
“In a televised speech Sunday, Khan mentioned that he ‘feels ashamed begging for loans and funds from foreign institutions’. Pakistan’s Prime Minister Imran Khan asked overseas citizens to invest and increase remittances to the South Asian country to help boost its foreign-exchange reserves and overcome an economic crisis.”
“For more than two decades, OPEC has tried to avoid repeating a mistake that cost it dearly. In November 1997, at a meeting in Jakarta, Saudi Arabia convinced fellow oil producers to boost output, ignoring a crisis brewing in emerging markets.
“The output increase came at the worst possible time. What in November 1997 looked like a hiccup, by mid-1998 was a full emerging-markets crisis spreading to Russia and Brazil. Global oil demand growth slowed, in part because of an unusually warm winter in the northern hemisphere. Benchmark oil prices fell below $10 a barrel, the lowest since the 1973-74 oil embargo.”
“Oil prices fell on Monday as concerns over slowing economic growth weighed on markets.”
Nations like Venezuela, Iran, Libya and Nigeria need lower oil prices like they need a hole in the head.
“Brazil is sending troops and extra police to the border town of Pacaraima where Venezuelan migrant camps were attacked and set ablaze.”
“The Statistician-General of the Federation, Yemi Kale, has said Nigeria’s economy has not recovered from the 2016 recession.”
The trade war, as it progresses, is also likely to hurt demand thence oil prices:
“It’s been step, by step, by step. And it’s been getting more and more expensive to produce products in China,” said Sloven, president of Capstone International HK Ltd, a division of Capstone Companies, from Deerfield Beach, Florida, a maker of consumer electronics goods.”
“The problems facing Sweden after a wave of shootings and arson attacks are every bit as serious as the country’s 1990s financial crisis, according to the favourite to become prime minister in next month’s elections… Sweden, held up in international surveys as one of the world’s happiest and most successful countries, has been jolted by frequent shootings, grenade attacks and arson attacks on cars in suburbs with a heavy immigrant population in Stockholm, Malmo and Gothenburg.”
“During rush hour on one of London’s most affluent streets, amid the bustle of the Strand, an orderly queue is forming. Dozens of people stand patiently, and hungrily, waiting for their dinner… “We find that people are not homeless as we know it. A lot of people are homeless and working. We get Deliveroo drivers quite a lot. There’s a road sweeper who picks up the rubbish who comes along sometimes. He’s not homeless, but I wouldn’t imagine he’s earning a great amount of money.””
“The exit [of Greece from its bail-out programme] is a welcome milestone. But it offers little assurance that the 19-country euro currency union has left behind its problems with debt. The huge debt pile in Greece and an even bigger one in Italy will remain a lurking financial threat to Europe that could take a generation to defuse. Europe’s debt problems have repeatedly raised fears over the past decade of a break-up in the euro, a worst-case scenario that would cause severe economic damage in the region and shake world financial markets and trade.”
Read the previous ‘Economy’ thread here.
“Turks are taking sledgehammers, handguns and fire to iPhones in a symbolic backing of their government as it clashes with the Trump administration over a jailed American pastor.
“Videos showing Turkish citizens stomping on or otherwise destroying iPhones have proliferated online in recent days, following President Recep Tayyip Erdogan’s call for Turks to boycott U.S. products…”
“Secretary of the Treasury Steven Mnuchin said Thursday the United States is prepared to put additional sanctions in place against Turkey if the government of President Recep Tayyip Erdogan does not release American pastor Andrew Brunson, who has been held since 2016.”
“The feud between President Tayyip Erdogan and U.S. President Donald Trump over steel tariffs threatens to turn other emerging markets cold.”
“Turkey is just a drill. A push by major central banks to reverse crisis-era policies is primed to accelerate into 2019 amid plans for higher interest rates and smaller balance sheets. So-called quantitative tightening then risks sucking dollars and euros from nations whose governments and companies binged on cheap debt without improving the fundamentals of their economies.”
“Russia will lose investors and face higher borrowing costs if the United States imposes a ban on investors buying new Russian government bonds, the Kremlin-backed Analytical Credit Ratings Agency (ACRA) said in a report on Friday.”
“The Iranian Minister of Industry, Mines and Business has said that fluctuations in the local forex market over the past four months has tripled the number of applications for import licenses, which have now risen to $250 billion… The $250 billion figure is also triple that of Iran’s annual oil income.
“These remarks have come at a time when the Islamic Republic’s Police and repeatedly reporting arrests of scores of individuals for “disrupting [the] forex market” and benefitting from subsidized dollars by importing good and selling them based on the global exchange rate, rather than the fixed Iranian one. General Gholamhossein Gheibparvar, a commander in the Basij militia, reported that his forces have discovered warehouses full of cars, rice, and construction materials across the country and arrested a number of people who intended to sell them on.”
“Lebanese banks are pulling out the stops to bring in dollars as the country strives to preserve a two-decade old currency peg… But the central bank’s high interest rates that keep money flowing into banks are increasing risk within the financial system and strangling an already depressed economy. That all comes at a time of renewed political uncertainty as Lebanon nears three months without a government.”
“The next government in Pakistan, saddled with mounting debts and a severe foreign currency shortage, is facing a dilemma over whom to turn to for critical financial assistance. Both the main options could undermine some of Prime Minister-elect Imran Khan’s social and economic goals.”
“Indonesia’s government has made a fresh appeal to the country’s exporters to exchange their holdings of foreign currencies to help support the tumbling rupiah, as Turkey’s financial crisis sparks fears of emerging market contagion.”
“”Public hospitals have no medicines and there are no gloves in the maternity wards. The situation is getting more and more serious,” said Eufrigínia dos Reis from the Mozambique Debt Group (Grupo Moçambicano da Dívida), a civil society organization fighting for debt reform. The country’s economic woes were brought on by secret loans that were backed by Mozambique’s financial minister without parliamentary approval – as is required by the constitution… some $500 million can’t be traced.”
“The five-digit inflation has earned Venezuela comparisons to the hyperinflation of Zimbabwe and Weimar Republic (Germany) from the International Monetary Fund. The newly minted currency, which will be known as the “sovereign bolivar,” will be rolled out on Monday.”
“Many of China’s ordinary citizens are just barely making ends meet, because of debt concerns and income disparities, according to an now-deleted article published by a researcher at the China-based think tank Suning Institute of Finance… Fu Yifu, who does macroeconomics research… found that disposable income was far lower than GDP. In 2017, in the countryside, a person’s disposable income was less than a quarter of the nation’s overall per capita GDP. In terms of wages, the numbers were also not optimistic.”
“Crashing out of the EU without a deal would be a “mistake we would regret for generations”, Jeremy Hunt [the UK Foreign Secretary] has said.”
“Snaking through the verdant flat lands of north-eastern Germany, the A20 runs through Chancellor Angela Merkel’s election district. She opened the key artery for the former communist region at a ceremony not far from the Zur Kastanie in December 2005, less than a month after she was first sworn in as the country’s leader. Twelve years later, the four-lane highway caved in after the foundations gave way in the marshy landscape, marking the clearest sign of a growing infrastructure crisis.”
“Thanks to political risks and regulatory changes, Italian lenders may be reluctant to snap up domestic government bonds during market stresses — a potentially huge structural shift in demand in the euro area’s second-most indebted nation.”
“Distillate markets are sending the same signal as a range of other indicators: the rate of global output growth has decelerated in recent months…”
“Short-cycle U.S. shale production is growing and will grow next year too, albeit at a slower pace. Yet, it may not be enough to plug the gap in just a couple of years, when the slump in investments in conventional fields around the world—the result of the oil price crash—will start to show up in the global oil supply.”
“Companies with speculative-grade credit ratings are spending a growing portion of their profits on interest payments as debt costs rise, causing concern as investors and economists debate the durability of the US expansion… as the Federal Reserve has tightened policy, the market has reached a tipping point, raising concern that further increases in interest rates could spark trouble for the market.”
“US companies have been particularly hyperactive buyers of their own stock, thanks to the earnings boost delivered by tax cuts and the robust economy. Goldman Sachs forecasts that the overall volume of US buybacks will reach a record-breaking $1tn in 2018. But companies in the UK, Europe and Japan are also aggressively repurchasing their shares, at a faster pace than new companies are going public or older ones are raising fresh capital through secondary share issues…
““The boom in US buybacks this year is widely known and commonly reported. Less well known, however, is the elevated net purchases by corporates occurring in developed markets outside of the US,” Inigo Fraser-Jenkins, a senior analyst at Bernstein, wrote in a report. At the same time, “the increase in stock buyback activity globally has coincided with subdued equity issuance activity,” he noted. “This explains why net issuance is at historic low levels across most of the developed world.””
“Come on – who are we kidding, $247.2 trillion in debt? There is no economic miracle that will save us from this system. It would require infinite growth over a period of time exceeding the lifespan of this planet.”
Read yesterday’s ‘Economy’ thread here.
“Copper… is trading more than 20 percent below its 52-week high, officially entering bear market territory… potentially signalling an economic slowdown is happening around the world.”
“”Dr. Copper,” as it is sometimes referred to by economists and finance experts, is often seen as a leading indicator of future economic trends since it is utilized in a number of different sectors. Copper is used in home construction and consumer products, as well as manufacturing.
“Ryan McKay, commodities analyst at TD Securities, said copper’s decline is the combination of several factors. “People are seeing weaker data in China, and trade wars are hurting demand,” McKay said. “It’s also dollar strength weighing on commodities as well.””
“A leading emerging market stock index extended its slump since January to 20 percent on Wednesday in a fresh wave of selling which took it into territory commonly regarded as a bear market. The scale of the fall in MSCI’s widely tracked 24-country emerging market index .MSCIEF is likely to be painful for many investors, given the index compiler estimates that more than $1.9 trillion of assets globally are benchmarked to the measure.”
“Brazil’s economy contracted 0.99 percent in the second quarter of this year, Brazil’s Central Bank said on Wednesday, citing the Economic Activity Index (IBC-Br).”
“Struggling to staunch a run on the peso that has helped drive the economy to the brink of recession, Argentina is aggressively pushing investors out of some of the local debt notes they hold.”
“South Africa’s retail sales figures for June surprised on the downside further raising the possibility of the economy has entered a technical recession last quarter.”
“The Turkish lira rallied from record lows on Wednesday after Emir Sheikh Tamim bin Hamad Al Thani said Qatar was standing by its “brothers in Turkey” as he announced a $15bn investment into the country’s financial markets and banks.”
“As the Trump administration continues to ramp up economic pressure on Turkey, the U.S. President signed a policy bill which will restrict the delivery of F-35’s to the beleaguered NATO member.”
“The Indian rupee fell 0.6 percent to hit a new record low of 70.32 against the U.S. dollar as the country’s trade deficit in July widened the most in five years, adding to the currency’s woes.”
“”The [South Korean] job market is the worst since financial crisis. The government’s big challenge is how to support the job market through fiscal policies,” Finance Minister Kim Dong Yeon said in a speech.”
“In the escalating trade war with President Donald Trump, China might be digging in its heels. According to a new report, China now appears willing to undertake a major currency devaluation – similar to the policy changes that roiled global markets in late 2015 and early 2016… In the past three months, China’s government has allowed its tightly-controlled currency, the yuan, to weaken by about 9%…”
“According to shipping data quoted by Reuters, the combined oil imports of China and India—the countries solely responsible for buying 12 percent of the world’s oil—were 500,000 bpd lower in July compared to the average combined imports of 12.4 million bpd in January to June this year.”
“The escalating trade war with China is leading U.S. retailers to speed up the import of goods from Asia’s largest economy to avoid new tariffs and ensure they have adequate supplies for the winter holidays.”
“The pound has endured its longest losing streak against the dollar since the financial crisis a decade ago because of mounting fears that the UK will crash out of the European Union in March and amid signs that the economy is struggling to gather momentum.”
“Fears are growing that Britain’s property bubble is about to burst. A string of indicators last night triggered concerns that the market is running out of steam – and could be heading for a correction or even a crash. Prices in London are falling at the fastest pace since the financial crisis – but the declines are not limited to the capital.”
“The price of Italian government bonds dropped sharply on Wednesday afternoon in a renewed bout of selling amid wider woes for risk assets… Jitters have repeatedly hit the €2tn market in Italian government bonds after the country’s populist Eurosceptic coalition government began negotiations on its debut budget earlier this month, something investors had previously not expected until the autumn.”
Read the previous ‘Economy’ thread here.