“Officials gathering for Group of 20 meetings in Buenos Aires this weekend will have plenty more crisis fodder than Lionel Messi’s World Cup performance to gab about.
“We heard growing fears this week that a downturn might be brewing from various corners of the global economy, while central bankers find their place in the policy tightening cycle and trade battles rage on…”
Find myself agreeing with Trump here: “U.S. President Donald Trump on Thursday criticized Federal Reserve policy even though most economists believe the highest inflation in seven years and lowest unemployment in 40 years justify recent interest rate rises and a strong U.S. dollar. Trump said he was concerned about the potential impact on the U.S. economy and American corporate competitiveness from rising rates and a stronger dollar.”
“The current bull market in stocks is a month or so away from becoming the longest in history. If it happens, then what? …a growing number of experts are questioning whether the stock market’s run will keep going through 2019 and beyond. The big threat now is the potential for a punishing trade war, as the United States squabbles with allies and rivals alike on tariffs. That could squeeze earnings and economic growth around the world. Beyond that, several firmer warning signals for the market are flashing yellow.”
“”You’re probably looking at 30 days.” That’s how long it would take before production “grinds to a halt” at automotive assembly plants, parts manufacturers, and other industry businesses on both sides of the [Canda/US] border if U.S. President Donald Trump’s proposed 25 per cent tariffs on all imported vehicles comes to be.”
“In the second quarter emerging markets currencies had their worst fall in seven years. July started better, but the downward pressure is back on a steady course of interest rate tightening in the US. This attracts capital to the dollar. Equity investors have been pulling money out of emerging markets for 10 weeks straight. So have bond investors…”
“Nicaragua’s economy is tanking as the violent chaos engulfing the nation paralyzes business activity. Police and pro-government paramilitary forces fired on government opponents hiding behind barricades and on university campuses this week, and besieged protesters who’d taken refuge in a church, as the clashes showed no sign of waning after three months.”
“Brazil’s oil regulator ANP said on Thursday it would not establish a minimum frequency for fuel price adjustments, after a nationwide truckers’ protest over rising diesel prices in May cast a spotlight on the issue… The crisis renewed a national debate over whether fuel prices should reflect rising international oil costs and shore up the finances of state-run oil giant Petrobras or protect Brazilians still hurting from the worst economic crisis in a generation.”
“Tansu Çiller, a former prime minister of Turkey, warned of a crisis in the corporate sector after some large companies began talks with banks to restructure their loans. “I see a very serious expectation of a crisis in the private sector,” Çiller said , according to Turkish columnist Abdulkadir Selvi.”
“Russian ownership of US Treasury bonds dropped from $96.1 billion in March to an 11-year low of $14.9 billion in May, the latest Treasury figures show… Elvira Nabiullina, the head of the Central Bank of Russia, reportedly said cutting the stake was the result of an assessment of financial, economic, and geopolitical risks. Russia has been buying gold as it sells off US bonds, recently overtaking China as the world’s biggest holder of gold, with $80.5 billion worth.”
“Chinese companies are facing a reality check after years of ramping up debt. The deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow financing and tightened rules on asset management. As a result, firms are having a tough time raising new funds to repay existing debt, leading to a record amount of bond defaults this year.”
“A policy debate in China on how best to address slowing growth deepened on Friday, as analysts urged authorities to boost fiscal stimulus amid rising risks to the world’s second-biggest economy from a bitter trade conflict with the United States.”
“North Korea’s economic trajectory has u-turned from surprisingly strong growth in 2016 to a sharp contraction last year — and worse is yet to come. Estimates from South Korea’s central bank show gross domestic product in the North contracted 3.5 percent in the 12 months through December, the biggest drop in two decades.”
“Some of the eurozone’s banking systems, notably Italy’s, remain weak thanks to high levels of non-performing loans. Throughout the region, banks’ profits have been weaker than before the financial crisis. The [IMF] described debt burdens in some member states as “heavy…””
“When Arthur Andersen collapsed after becoming entangled in the Enron scandal in 2002, the US accounting firm was written off by many in the audit profession as an outlier… But a steady stream of damaging news involving the accounting giant KPMG over the past 12 months has regulators, competitors and clients once again posing hard questions about the strength of one of the world’s biggest audit firms.”
“As Donald Trump continues to escalate his slap-happy approach to tariffs on Chinese goods, China is running out of US goods on which to to levy duties in retaliation. But if China wants to keep going tit-for-tat, it has other options.
“Unlike the US government, the People’s Bank of China—China’s government-run central bank—directly manages the value of its currency. The Chinese government let the yuan weaken around 4% against the US dollar in the last month, among the sharpest one-month drops in value in its history. The yuan’s slide has sparked fears that China could “turn a trade war into a currency war,” as Brad Setser, economist at the Council on Foreign Relations, phrased it.”
“If antagonizing Trump is the goal, depreciation has double-whammy appeal. Since it makes China’s exports cheaper—and therefore more competitive against US manufacturers—allowing the yuan to weaken will soften the blow of Trump’s tariffs on the Chinese economy, all other things being equal, and possibly eliminate the impact altogether. Conversely, it will also make the American products China buys more expensive, reinforcing the effects of China’s tariffs on US-made goods.”
“China this month recorded one of its biggest corporate-debt defaults yet, with the downfall of a coal miner that had ridden the country’s wave of credit until policy makers changed the game with their deleveraging campaign…. How the borrower ran up a 72.2 billion yuan ($10.8 billion) tab that it now can’t make good on illustrates why this year will be China’s worst yet for corporate defaults. And with a potential lifeline from state-owned banks unveiled Wednesday, it could also emerge as an example of China’s unwillingness to allow unbridled corporate failures.”
“Japanese business sentiment slipped in July, a Reuters poll found, reflecting companies’ fear of fallout from an intensifying trade dispute between the United States and China… In the poll of 483 large- and mid-sized companies, many respondents expressed concerns about protectionism, high energy and materials costs squeezing profits, and labor shortages that raised hiring costs. Some 268 firms responded on the condition of anonymity.”
“Tumbling out of the European Union without a deal in hand could cost the pound dearly. Sterling could slump as much as 8 percent against the dollar if the UK doesn’t clinch a deal with the EU by March 29, when the nation is slated to leave the bloc, according to a survey of analysts.”
“The cost of filling up a typical family car [in the UK] with 55 litres of unleaded rose by £6.98 to £70.40 between June last year and June this year. The cost of filling up with diesel jumped by £8.14 to £72.66.”
“Demand for retail space in London has dived as woes around high street closures grow, according to a highly-regarded survey out today. Roughly 68 per cent more chartered surveyors in London’s retail sector noted a quarterly fall, rather than a rise, in demand for space in the capital, reaching levels not seen since 2008.”
““We are reasonably confident that the ECB will raise rates before the next downturn, but the risk of this not happening has clearly risen with the accelerating trade war, which has come amidst signs of slowing growth momentum,” said Elwin de Groot, head of macro strategy at Rabobank.”
“The most remarkable member in Erdogan’s new Cabinet is his son-in-law, Berat Albayrak, who took the reins of the economy at a time of serious financial woes. Erdogan chose to sideline Mehmet Simsek, the hitherto czar of the economy who enjoyed credibility among local and foreign investors; he then attached the Treasury to the Finance Ministry and handed the portfolio to Albayrak… Economic actors have remained reluctant to put their money in the Turkish lira, bring in funds to Turkey or make investments. As a result, the depreciation of the currency has continued.”
…from my summer break. My apologies for the hiatus. Let normal business resume:
“A decade after the 2008 recession, the policymakers who countered it on its front lines are worried that the US may not be adequately armed for the next economic crisis.
“Speaking at a roundtable discussion on Tuesday, former Federal Rerserve Chairman Ben Bernanke and former Treasury Secretaries Timothy Geithner and Henry Paulson recounted the lessons they learned in the wake of the crisis, and where they fear Americans may have forgotten them.
““One of the most powerful lessons from this crisis should be that you want to work very hard to make sure that your defenses are robust,” Geithner was quoted by AP as telling the audience. “We let the financial system outgrow the protections we put in place in the Great Depressions and… made the system very fragile and vulnerable to panic.””
“There’s no chance China will cut its trade surplus with the U.S. in response to President Donald Trump’s tariff threats. For starters, Washington has made no specific demand to which Beijing can respond. But its efforts may have an unexpected side effect: a debt crisis in China.”
“A majority of Chinese consumers would be prepared to boycott US goods in the event of a trade war with Washington, a survey has found, signalling the high stakes in the escalating trade conflict between the two countries.”
“The U.S.-driven trade war has become the biggest “confidence killer” for the global economy, China’s foreign ministry warned on Wednesday, saying the whole world would fight back if the United States continued to be “wilful”. “
“China will take 28% of Venezuela’s 1.34 million barrel per day oil production. Venezuela will not get cash but would have to send oil for about three years to pay off the debt… If Venezuela oil production completely collapses then China would not be able to collect .”
“A twelve-year-old boy was killed in the Venezuelan city of San Felix overnight in an incident in which demonstrators protesting chronic power outages partially burned a small police station, police said on Tuesday.”
“In this once-thriving industrial city as in much of [Venezuela], public buses have gradually disappeared due to scarce or prohibitively expensive tires, motor oil, batteries and spare parts. Cargo trucks of all shapes and sizes have taken their place, but most lack even basic safety protections for human cargo and are increasingly associated with accidents and injuries to passengers – a further sign of the deteriorating quality of life in the crisis-stricken country.”
“Oil production by Brazilian state-led Petroleo Brasileiro SA in the Campos basin fell 1.4 percent in June over the previous month to 1.042 million barrels a day, its lowest level since 2001, as mature fields decline, according to company data. “
“Brazil’s Ministry of Health reported on Monday that after 25 years of sustained decline, the rate of infant mortality started to rise in 2016, partly due to the Zika virus epidemic as well as the economic crisis that the South American country has been facing. “
“During Putin’s first two terms, when prices per barrel soared above $100, the country could simply spend its way out of trouble, but a rise is always followed by a fall. When prices crashed from $114 in June 2014 to $27 in 2016, Russia’s finances collapsed. Even today, oil prices remain way below their peak at around $80 per barrel.”
“A year after the international community assembled a US$5.5 billion emergency package, Mongolian stock and bond performance reflected the escape from a debt crisis, but “more downside than upside risks” persist, according to the International Monetary Fund’s July program review.”
“[Iraq’s] economy is in dire straits. Iraq relies too heavily on its rich energy reserves as a source of revenue, and the government struggles to efficiently distribute services everywhere on its territory. In addition, the number of Iraqis living under the World Bank’s determined poverty line has grown over the past decade, while the rate of internal displacement has accelerated, largely because of the rise of the Islamic State and the fight against it.”
“Iranian Foreign Minister Mohammad Javad Zarif says Iran has lodged a complaint with the International Court of Justice (ICJ) over the United States move to re-impose unilateral sanctions against Tehran.”
“[UK] Employment hit a record high and joblessness stayed at a 43-year low in the three months to May, but earnings growth slowed as the labour market continued to confound convention. The weakness in wage growth, which dipped from 2.6 per cent in April to a six-month low of 2.5 per cent, is unwelcome, but economists said that it was unlikely to deter the Bank of England from lifting interest rates next month.”
“A horrifying graph highlighting skyrocketing levels of household debt shows how vulnerable residents in Australia’s largest cities have become to economic shocks. The Reserve Bank of Australia board was warned of the dangers of rising debt levels in its most recent board meeting.”
“Plunge, tumble and rout are overused by the financial media to describe a market in decline, but such superlatives would not be out of place to describe what’s happening to commodities. The Bloomberg Commodity Index of 25 raw materials ranging from oil to copper to cattle dropped as much as 2.80 percent on Wednesday, the most since 2014, before closing at its lowest level since December. That brought the gauge’s decline to 8.88 percent from this year’s peak in late May.
“If one thinks of raw materials as a sort of early warning system — copper is frequently called the metal with an economics Ph.D. because it often tracks the health of the world economy — then commodities are sending an incredibly distressing signal.”
“The copper price, which started sliding a month ago, slumped 3 per cent on the London Metals Exchange on Wednesday night to its lowest level for a year. It’s fallen about 15 per cent in a month. It wasn’t alone. Base metal prices generally fell sharply, with zinc down 6 per cent and nickel and lead both about 3 per cent. Aluminium prices have also fallen heavily over the past month, down more than 7 per cent.”
“Global investors have been rattled after a threat by the Trump administration to impose 10% duties on $200bn (£151bn) of imports prompted protests from Beijing and brought an all-out trade war a step closer. Stock markets headed lower in the US, Asia and Europe on Wednesday as the US warned that it would press ahead with further tariffs and China promised to “fight back as usual” with “firm and forceful measures” if they were enacted.”
“While higher prices caused by the import taxes are the most immediate effect, accounting for roughly half the decline in GDP, the larger impact will come from derailing the existing global supply chain of goods hit by the tariffs and the impact on jobs and confidence.”
“A rout in China’s dollar-denominated junk bonds is getting worse as mounting defaults send traders running for cover. Rising trade tensions are also adding to longer-existing difficulties created by the nation’s push to cut excessive leverage.”
“Inner Mongolia Berun Group Co said on Wednesday that it was uncertain of its ability to make interest and principal payments on a medium-term note totaling 856 million yuan ($128.32 million). The manufacturer of coal and natural gas chemicals said it was actively considering methods to raise funds, but that tight finances meant there was a risk it would not be able to make the payments.”
“Turkish equities, bonds and the lira took a hammering on Wednesday as Recep Tayyip Erdogan predicted a fall in interest rates and investors fretted over the health of the country’s economy… Turkey must find around $200bn a year in foreign financing — most of it in the form of short-term “hot money” flows — to fund the current account deficit as well as maturing debt. But foreign investors are worried about the management of Turkey’s $880bn economy under a powerful new executive presidency that came into force after last month’s elections and centralises power in the hands of Mr Erdogan.”
“Many [of Morocco’s] state-owned strategic institutions are on the verge of bankruptcy due to financial and legal problems, which may lead the government to privatizing the establishments as a solution.”
“As it stands, Italy does not necessarily wish to leave the euro of its own volition. However, Italy’s debt crisis could be a major problem for the eurozone. Should Italy default on its debt, then this has the potential to trigger a significant decline in global growth.”
“Tory Rebel, Dominic Grieve told the audience: “If by the end of February or early March it is clear that there is no [Brexit] deal on anything, there will be a declaration of a state of emergency in this country… Ordinary life will grind to a halt.””
“Foreign direct investment in the United States dropped 32 percent, or $120 billion, in 2017 as compared to the year before, according to new figures. After a two-year spike in foreign investment, the Bureau of Economic Analysis found that the rate last year dropped to levels similar to 2014 and the years before the financial crisis.”
“The reach of America’s student loan problem — total debt is now about $1.4 trillion — is vast. Millions of people are in default, and many young people are graduating into adulthood facing payments that limit their ability to buy homes and to start families of their own. Some employers have even begun dangling student loan repayment benefits as a perk to potential workers.”
“Masayoshi Son and Elon Musk leveraged their dreams to the hilt… They’re the headliners in a decade-long, $11 trillion corporate borrowing frenzy, fueled by central banks that flooded the global financial system with ultra-cheap money. Investors have been lending to virtually anyone willing to pay a decent yield. But now the easy money is coming to an end. Policy makers, after driving interest rates to unprecedented lows, are hiking those rates for the first time in 10 years. For many companies, it will bring new financial pressures. And for some of them, those pressures could trigger disaster.”
“The current system now relies nearly entirely on the so-called “big four” accounting firms — KPMG, Ernst and Young, Deloitte and PwC… they have “lost sight of their core purpose”, with only a third of their revenue coming from auditing and the rest earned from “consultancy services”… the firms are now selling billions of dollars worth of business advice to the same companies they are supposed to independently audit.”
“If there were any remaining doubt that the rising war of words over trade between the US and its big trading partners would break out into substantive conflict, the past week has dispelled it.
“Donald Trump, having brought in tariffs on imports of steel and aluminium, including on allies such as the EU, Mexico and Canada, imposed US levies on $34bn of goods from China and threatened much more to come.
“Beijing, predictably, immediately retaliated with tariffs of its own. Its sense of self-esteem and the economic nationalism underlying the industrial strategy of Xi Jinping, China’s president, could not allow otherwise.
“…this is not a normal trade conflict. Not only are the US president’s goals hard to square with any kind of normal commercial relationship but his chosen means of achieving them are erratic and contradictory.
“The sort of carefully calibrated tit-for-tat of previous trade conflicts, such as Brussels’ threats to retaliate against George W Bush’s steel tariffs in 2002, are unlikely to be met with a predictable reaction from Washington.
“…on occasion, Mr Trump’s rhetoric has lurched from extreme protectionist to radical free-trader. A case in point: he proposed, at a meeting in Canada, that G7 countries reduce all tariffs against each other to zero.
“It is, however, possible to discern a few clear lines from Mr Trump’s statements and actions. He wants to repatriate a significant chunk of existing international supply chains in manufacturing, particularly in goods such as steel and cars, to the US…
“The EU and China will be under pressure to respond…
“Mr Trump, regrettably, is serious about tariffs. His trading partners have an unenviable task trying to guess his likely reaction. One thing is clear, however: the standard field manual from previous cases of trade war may be of limited use in the escalating conflict they now face.”
“…as we have seen, the sustainability of global growth depends largely on the US and China. Obviously, if these two economic giants are going to start trading blows with tit-for-tat tariffs, both will lose – and so will the world economy.”
“UK house prices should be frozen for five years to help prevent another financial crisis, the think tank IPPR has said. The group has urged the Bank of England to freeze property prices under a separate new inflation target…”
“A sense of unease hangs heavy. “Theresa May is respected in Europe,” one contact told me. “But so many times since this Brexit process began, we’ve had to ask ourselves: will she stay or will she go? And now here we are again.” Political uncertainty in Britain makes the possibility of a no-deal Brexit seem far more likely in the eyes of Brussels bureaucrats.”
“Eurodollars, which are hyper-sensitive to the expected path of Federal Reserve rate increases, now signal that central bankers will have to stop raising interest rates in late 2019 or early 2020, with the benchmark well short of 3.375 percent, which officials have projected by the end of 2020.
“That’s in stark contrast to what eurodollars indicated in mid-May, at the peak of the bond market sell-off. At that point, the slope of the curve was firmly positive through 2021, and even then, further gradual Fed tightening was priced in for the years to come. Fed funds futures contracts themselves tell a similar story.
“All this confirms the sobering reality that the U.S. is fast approaching the end of its drawn-out economic expansion. Intuitively, investors know this.”
“Since 2014, hundreds of thousands of Central American men, women, and children, mostly from Guatemala, Honduras, and El Salvador, have fled their homes. Driven by violence, extortion, poverty, and a drought that has decimated subsistence farming, and pulled by family connections and the hope of safe haven, they mostly head north… On the campaign trail, Lopez Obrador promised to loosen Peña Nieto’s southern border defense, refusing to “continue the dirty work” of the United States by detaining Central American migrants who are fleeing violence [into Mexico].”
“Saudi Crown Prince Mohammed bin Salman… is struggling to turn the country’s financial fortunes around, with the economy suffering a crisis of confidence. Hit hard by the oil-price collapse, the kingdom is now experiencing a plunge in foreign investment and high levels of capital outflow… As of April, more than 800,000 [foreign workers] had left the country since late 2016, alarming domestic companies concerned that the foreigners cannot be easily replaced.”
“”This trend of wageless growth in the face of a rise in employment highlights the structural changes in our economies that the global crisis has deepened, and it underlines the urgent need for countries to help workers, especially the low-skilled,” OECD Secretary-General Ángel Gurría said in a statement accompanying the wage report…
“”Inclusive growth” seems to be one thing the global economy isn’t seeing these days. An analysis of the OECD’s data, carried out by The Guardian, found income among the top one per cent of earners grew about four times as fast as the median income. The OECD calls this a “long-standing trend.””
“Global debt is becoming a bigger worry as the global policy tightening cycle takes hold, a top boss at the World Bank warned Monday.
““After a decade of low interest rates, the corporate and public debt in many places has ballooned to a staggering $164 trillion,” Kristalina Georgieva, chief executive officer of the World Bank, said in an interview in Singapore on Monday with Bloomberg Television’s David Ingles and Haidi Lun. “With interest rates going up, that attention on debt sustainability has to be stronger.”
“Central banks across the world are under pressure to follow a Federal Reserve that’s raising interest rates faster than initially anticipated, putting particular stress on emerging markets and developing economies. The need for structural policy changes, including responses to waves of anti-globalization, remains great as policy makers in most economies haven’t taken sufficient action during the extended period of low borrowing costs, Georgieva said…”
“World debt, including household debt, ballooned to $237 trillion in the fourth quarter of 2017, according to calculations by the Washington-based Institute for International Finance. That’s more than $70 trillion higher than a decade ago.”
“It has never occurred before that the world’s central banks have unloaded their balance sheets all at the same time. QE has never occurred before on a global scale. QT has never occurred before. This is new territory.
“The way the politicians and central bankers are mishandling this is a guarantee of a recession and stock market panic “that no one could foresee.” They have to be different each time; otherwise, they would not occur. It will be glibly termed a “Black Swan” event, an external shock that no model could predict…”
“A big tussle is taking place within China that the leveling of tariffs by Washington and Beijing can only aggravate. That struggle is the effort by China to slow credit significantly: Enough to squeeze the shadow banking industry and rein in debt at state-run firms, but not so much that it causes a slump in overall growth. Getting the balance right is tricky. Few countries manage to pull off soft landings, and trade conflict makes the task even trickier.”
“China’s Ministry of Commerce announced Friday it would place tariffs on U.S. goods, saying it was forced to respond to the U.S. launching “the largest trade war in economic history” by putting duties on Chinese goods. “Technically speaking, we are in a ‘trade war’ as we now have actual tariffs being imposed, with retaliatory responses,” Michael Englund, chief economist at Action Economics, told CNBC.”
“Brexit Secretary David Davis, who has been leading UK negotiations to leave the EU, has resigned from government. In his resignation letter, Mr Davis criticised the PM’s Brexit plan… saying it would leave Parliament with “at best a weak negotiating position”… The resignation is a blow to Mrs May as she seeks to win over Eurosceptic MPs to her proposed Brexit vision.”
“A widely watched measure of eurozone capital flows suggests that Italy’s debts to the European Central Bank are set to hit €500bn this summer, reflecting the eurozone’s persistent financial imbalances… The issue of eurozone cohesion will come to the fore once more this autumn when Italy’s new populist Eurosceptic coalition government sets out its spending plans.”
“Lebanon requires “an immediate and substantial” fiscal adjustment to improve the sustainability of public debt that stood at more than 150 percent of gross domestic product (GDP) at the end of 2017, the IMF executive board said in late June.”
“Pakistan’s next government, to be chosen in a July 25 election, faces growing fears of a balance of payments crisis with speculation it will have to seek its second IMF bailout in five years, analysts say. The central bank is running down its foreign reserves and devaluing the currency in a bid to bridge a yawning trade deficit, and the winners of the July 25 election will have “limited time” to act, Fitch ratings agency said on July 2. Together, the economic challenges are “horrendous”, said Dr Ashfaq Hassan, an analyst and former financial advisor to Pakistan government.”
““Cash-strapped South Africans are increasingly turning to payday loans as a quick solution for making ends meet if they run out of money before the end of the month, but unfortunately this noose starts tightening rapidly once a deadline is missed. Interest mounts and many consumers have to borrow to pay the interest, leaving the original debt unpaid.””
“U.S. companies are buying back record amounts of stock this year, but their shares aren’t getting the boost they bargained for… But 57% of the more than 350 companies in the S&P 500 that bought back shares so far this year are trailing the index’s 3.2% increase. That is the highest percentage of companies to fall short of the benchmark’s gain since the onset of the financial crisis in 2008…”
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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.