Bank holiday + sick kids, so no full econo-thread today – sorry!
This is the big story:
“Stock markets in China and Europe have been hit after US President Donald Trump threatened new tariffs on China, putting a trade deal in doubt.
“He said on Twitter the US would more than double tariffs on $200bn (£152bn) of Chinese goods on Friday and would introduce fresh tariffs.
“Recent comments had suggested both sides were nearing a trade deal.
“A Chinese delegation is preparing to travel to Washington for negotiations aimed at ending the trade war.
“It is not clear whether Beijing’s top trade negotiator Vice-Premier Liu He will be part of those negotiations that are due to resume on Wednesday.
“”We are currently working on understanding the situation,” foreign ministry spokesman Geng Shuang said during a regular news briefing, according to news agency AFP.
“Earlier, US media reported that Beijing was considering cancelling the talks. Reports said the Chinese were due to send a 100-person delegation to the negotiations.”
“In China, Hong Kong’s Hang Seng index closed 2.9% lower, while the Shanghai Composite tumbled 5.6%.
“European stock markets fell in early trading. Particularly hard hit were the makers of cars, car parts and steel.
“US stock futures pointed to a lower open on Wall Street. Markets in London are closed for a bank holiday.”
Read the previous ‘Economy‘ thread here and visit my Patreon page here.
“In the Great Recession, authorities faced enormous pressure to “do something.”.
“The Fed cut a quarter-point from 5.25% where it had stayed for some time. A year later, it was down to 2%, and soon to zero.
“But the bigger and even more aggressive policy move was in asset purchases. It included but wasn’t limited to quantitative easing.
“The stimulus went on for too long and gave the economy time to go from “dependence” on easy money to outright “addiction.”.
“This will eventually lead to a worldwide default, which I’ve dubbed the Great Reset…
“The Fed is now at least pausing that experiment and appears set to reverse it later this year. I fear it is acting too late.
“The latest corporate earnings news and lots of other data suggest the cyclical weakening has begun. The next marker will be some high-profile debt defaults, probably among lower-rated issuers.
“I don’t know who: WeWork, Tesla, name your favorite. But somebody is going to run out of cash and find themselves unable to refinance for the 97th time. And then the real fun will begin.”
“The years since the financial crisis have been peppered with warnings about history repeating itself. Investors have sounded an alarm about the return of highly leveraged corporate buyouts by aggressive private equity firms.”
“Investors are flocking back to a complex debt-derivatives product blamed for amplifying losses in the financial crisis, reckoning that the securities are safer now that they are no longer backed by subprime mortgages.”
“The government oversight board leading Puerto Rico through its $123 billion debt crisis sued dozens of banks and financial firms on Thursday.”
“April, a new coalition of former regulators, researchers and landowners called the Alberta Liabilities Disclosure Project stepped up the fight to make the oil and gas industry do more [to clean up orphan wells].
“Using freedom of information laws, it dug up internal AER documents that revealed the estimated cost of cleaning up Alberta’s oil and gas wells would be between $40 billion and $70 billion. That’s far more than the $18.5 billion the AER has publicly suggested.”
“Fuel distribution workers in Tunisia began a three-day strike on Thursday to demand higher wages, leading to long queues and empty pumps at petrol stations across the North African nation.
“The government is facing rising public demands for more pay as price rise, with inflation at about 7 percent. It is also contending with pressure from international lenders to cut the public wage bill and other spending to shore up state finances.”
“Turkey’s energy sector has $12-13 billion worth of loans that require restructuring, out of a total of $70 billion, lender Garanti Bank’s deputy managing director Ebru Edin said on Thursday.
“Last month, Finance Minister Berat Albayrak unveiled a plan to transfer some of the banking sector’s problem loans to off- balance-sheet funds…”
“Like many Iranians, the 44-year-old Bahktiari doesn’t trust the country’s troubled banking system to safeguard his money. The public’s distrust is especially high when it comes to foreign banknotes.
“Officials in Iran estimate the country’s citizens have between $10bn and $25bn in foreign banknotes stuffed under mattresses or kept in safes.”
“To hear many investors tell it, Greece is in the midst of a supercharged recovery after being the euro debt crisis’s poster child and suffering under years of recession and austerity.
“But Greeks like Dimitra D. are not buying the turnaround story…”
“The idea of a squeezed middle certainly resonates in the suburban households that have been feeling the pinch during the long and incomplete recovery from the crash of 2008.
“For sure, it sums up what has been going on in Britain’s “flexible” labour market, where the gig economy flourishes. But the hollowing out of the middle is happening in most business sectors, in the housing market and in politics. It is not confined to the UK and the US – it’s happening, albeit at different speeds, just about everywhere in the developed world.”
“[Australian] New vehicle sales slumped in April as part of an ongoing trend tied to housing market woes, natural disasters and this month’s federal election.
“The Federal Chamber of Automotive Industries’ figures showed a 22 per cent monthly decrease in sales for April… About 320 less vehicles are being sold a day compared to a year ago.”
“Container freight rates fell 4.2% in April…
“The rate falls were across the board with European imports fell by 4.8%, while exports declined by 1.9%; for Asia the import benchmark dropped by 2.1% while exports slumped 3.6%; and for the US the export benchmark fell by 2%, while the import index dropped by 3.4%.”
Read the previous ‘Economy’ thread here and visit my Patreon page here.
“The global economy softened considerably last year as a result and certain sectors fell into contraction in different developed countries. Although, the manufacturing sector has been hit the heaviest since most tariffs are targeting manufactured products. This sector fell into contraction in China at the end of last year.
“It finally came back into expansion in March, but last month we saw another slowdown and now the manufacturing activity is near contraction again in China. Manufacturing has also been in contraction in Italy since October last year while in February, Germany and France joined in what seems to be a dip contraction.
“Yesterday we saw Canadian manufacturing fall into contraction as well, while the US ISM manufacturing declined considerably. Today, the Eurozone manufacturing reports are scheduled to be released and they are expected to remain deep in contraction…”
“Eurozone manufacturing activity continued to contract in April, even if at a slower pace than in the previous month, according to a closely watched survey of industry executives.”
“The European Central Bank’s policy arsenal has not been depleted and fiscal policy could help stimulate investment, the ECB’s incoming executive Board member Philip Lane has said.
“Investors fear the ECB’s window to potentially raise interest rates has closed, meaning it has little in its toolkit to face the next recession.”
“The US manufacturing sector grew at its weakest level in two and a half years in April, the Institute for Supply Management said…”
“Growth in the first quarter was pumped up by a large gain in business inventories, which have been ballooning since last summer. This means that businesses are producing more than they are selling, and that’s not sustainable.
“Businesses soon will have no choice but to cut back on their output, and because GDP measures the value of all of the goods and services we produce, growth will slow… The trade deficit also narrowed unusually sharply as imports plunged.”
“The U.S. government will have to stop borrowing money between July and December if Washington doesn’t agree to raise a legal restriction on public debt, the Treasury Department said on Wednesday.
“Hitting that so-called “debt ceiling” could trigger a U.S. default on its debt and an immediate recession, a risk that has become a regular facet of U.S. politics over the last decade.”
“Ultra-loose monetary policies keep the cost of credit exceptionally low for an extended period of time. The Federal Reserve’s active manipulation fosters a wealth effect, but it also fosters an asset bubble.
“When the balloon inevitably pops, corporations batten down their hatches, unemployment surges, and consumers rein in their consumption. The severity of a “wealth effect reversal” will trigger the next recession.”
“Recent subprime-auto bonds from Prestige Financial Corp. and Exeter Finance Corp. are performing worse than anticipated…
“The challenges both face may be remnants of a push for rapid growth a few years back, when these smaller lenders temporarily loosened credit standards to compete against big banks for loan volume, S&P Global Ratings said in a report Monday. Competition intensified from 2014 to mid-2016 as several subprime auto asset-backed security issuers offset lower profit margins with higher loan volume.”
“Factory activity recovered last month in parts of Asia but still appeared to be on shaky ground as global demand remained subdued and China’s stimulus measures were yet to show their full pulling power.
“That left the outlook for the region’s central banks skewed towards easing, with Malaysia and New Zealand prime suspects for potential rate cuts, and Australia — whose monetary policy setters also meet next week — facing growing calls to ease.”
“This is the worst annual earnings season ever for China’s corporate sector, with a record 452 out of 3,602 public companies incurring annual losses, as the effects of the year-long US-China trade war seep into corporate earnings.
“By the end of April, the number of loss-making companies had doubled from 2017, while the proportion of such companies also hit an all-time high of 12.5 per cent…”
“Chinese module manufacturer Yingli has warned it faces being broken up entirely to satisfy creditors who have already lodged numerous lawsuits against its debt-laden businesses.
“The annual accounts filing lodged today with the U.S. Securities and Exchange Commission spells out the full horror of Yingli’s balance sheet and is a 200-plus page litany of unpaid debts, angry creditors, ever mounting losses and even links to sanctions-busting entities in Syria, Iran and Sudan.”
“Six months after the US sanctions came into effect, Iran’s economy appears to be struggling.
“Efforts by the international community to salvage the nuclear deal and provide an economic lifeline to Iran to dampen the fallout of the sanctions have not borne fruit so far and recent devastating floods in the oil-producing southwest of the country have only exacerbated the situation.”
“Hobbled by recession and one of the world’s highest inflation rates, Argentina may be lurching toward the next in a series of economic crises afflicting the country over the last 70 years.
“Consumer prices streaked more than 54 percent higher in the 12 months through March in defiance of central bank efforts to control inflation, fueling poverty and further damaging a business climate blighted by nose-bleed high borrowing rates.”
Subscription only but the headline looks interesting:
Read the previous ‘Economy’ thread here and visit my Patreon page here.
“The US, Canada and Mexico could be suffering a growth wobble as the global economic slowdown threatens even the largest economy and its neighbours.
“Mexico’s GDP went into reverse in the first quarter as the country was hit by an unexpected contraction.
“Economic output fell by 0.2pc in the opening three months of 2019, initial estimates show, rather than rising by 0.3pc as analysts had expected.
“That is a fall from growth of 0.2pc in the previous quarter…
“Meanwhile, Canada’s GDP contracted by 0.1% in February.”
“…the prospect of ongoing instability, or outright civil war, only magnifies the dangers for Venezuela and for its oil production. Argus Media said that two army officials said that “six or seven” garrisons have been seized by soldiers backing Guaidó, although those claims have not been confirmed.
“Meanwhile, Argus also said National Constituent Assembly president Diosdado Cabello ordered all “armed collectives and civilian militia units in Caracas” to go to the presidential palace in Caracas to defend Maduro.”
“Scientists from labs across Argentina stayed home today, joining a nationwide strike against the government’s latest round of austerity measures.
“One of their key rallying points: a call to restore lost opportunities for young researchers who began their education during a time of high investment in science but now have little hope of continuing their careers in Argentina. Schools, public transportation systems, and university offices shut down as their employees joined the strike.”
“Brazil’s job market weakened in the first quarter, with 13.4 million people out of work and often forming massive lines to compete for precious few openings.
“The jobless rate surged to 12.7 percent in the first three months of the year…”
“African countries coping with low commodity prices must do more to re-balance investment and sustainable debt, and they should also ramp up tax collection, the International Monetary Fund’s Africa chief said…
“In the countries worst hit by the slump, the balance between investment aimed at development and sustainability had to be improved, Abebe Aemro Selassie, the IMF’s director for Africa, said during an interview on Tuesday in Nigeria’s capital, Abuja.”
“Turkey has been almost constantly in the news over the past year, as troubling headlines about its economy and political situation continue to pile up.
“In a currency meltdown that escalated last summer, the Turkish lira has plunged by nearly 40%, threatening the Turkish economy as a whole.”
“Smaller and riskier emerging markets hit $3.2 trillion (£2.4 trillion) in debt at the end of 2018, but hard currency issuance by governments and companies slowed, an Institute of International Finance (IIF) report showed on Tuesday…
“And a steep rise in government debt could prove painful for vulnerable economies across a 26 country sample ranging from Pakistan and Kazakhstan to Vietnam and Bahrain, it added.”
“Australian house prices have in the past year suffered their biggest fall since the Global Financial Crisis. National home values have fallen 7.2 per cent in the past 12 months.
“The last time prices dropped more than that was in the year to February 2009 when they fell 7.4 per cent. The average price of houses in Sydney in April was $880,369, 16.1 per cent less than the peak of $1,049,740 in July 2017.”
“Europe, long a major destination of investor capital, is losing luster, say prominent bankers and asset managers, who are reducing exposure to the area…
“Among the concerns:
Great Britain will experience a hard Brexit separation from Europe, resulting in financial calamities; “yellow vest” protesters demanding equality in France will push the country toward unsustainable economic policies; Italy is not dealing with underlying issues that sent it to a third recession in a decade; big banks across Europe, including Deutsche Bank AG, have not dealt with money-losing exposures stemming from the 2008 financial crisis; and the European Central Bank has run out of options to fix all the troubles on its own.”
“Much will depend on how sustained the [oil price] spike proves to be.
“Exporting nations will enjoy a boost to corporate and government revenues, while consuming nations will bear the cost at the pump, potentially fanning inflation and hurting demand.
Ultimately, there comes a point where higher prices may be damaging to everyone.”
“The last time the Federal Reserve regularly hit its inflation target was 11 years ago, as financial markets in 2008 were entering the throes of a financial crisis and a recession.
“In some ways, that represents a cautionary moment for Tom Porcelli, chief U.S. economist at RBC Capital Markets, who says if the Fed tries to achieve its 2% inflation target by keeping monetary policy loose for an extended duration, it could drive rampant credit growth and destabilizing financial excesses.”
“There is a “crisis” brewing in America which will affect more Americans than the subprime crisis in 2008. For years, Wall Street has espoused the “myth of compounded average returns.”
“A report from the non-profit National Institute on Retirement Security found that nearly 60% of all working-age Americans do not own assets in a retirement account.”
Read the previous ‘Economy’ thread here and visit my Patreon page here.
“The world is $243 trillion (£188tn) in debt, according to the Institute of International Finance, pushing it very close to $244tn (£189tn), the highest on record.
“Around 40% of low-income countries are in ‘debt distress’ or are at high risk of falling into that category in the near future. Public debt in advanced economies is the highest as a proportion of GDP it has been since World War II…
“The global economy is running on credit and economies around the world are having growth forecasts cut. ‘Large challenges loom for the global economy to prevent a second Great Depression,’ the IMF’s annual economic outlook said.
“Governor of The Bank Of England Mark Carney reported the weakest output since recession in 2009, the bank JP Morgan says a recession is coming in 2020, economist John Mauldin predicts that the 2020s will be the worst decade in American history and billionaire investor George Soros says we may be heading for another global financial crisis.
“While not quite the four economists of the apocalypse, prediction after prediction is saying that 2020 will be the year when things really start happening.”
“A new global economic crisis might be on the horizon. Global growth remains very soft and the world’s largest companies are revising their growth figures and holding back on investments. Unilateralism, fragmented regulatory bodies and a depleted arsenal of tools for reviving economic growth will mean that the next recession is likely to be more prolonged and more devastating.
“There are multiple reasons why the next crisis will be far worse than the crisis of 2008.”
“Although the global financial crisis began in the U.S., the breakdown it triggered in Europe had graver consequences.
“A decade later, the economies of the U.S. and the European Union have both largely recovered, but some of the hardest-hit European countries — Greece, Italy and Spain — are not in such good shape.”
“Eurozone statistics agency Eurostat will release first quarter GDP data for the single currency area today.
“Quarterly growth is forecast to remain between 0.2% and 0.3%. Transatlantic trade tensions and uncertainty over Brexit made an impact in the fourth quarter of 2018, when growth collapsed to 0.1%. This has raised fresh concerns that the European Central Bank has withdrawn stimulus too early, making it likely that it will be forced to further delay its decision to raise interest rates until at least 2020 and introduce new stimulus measures.”
“British car manufacturing declined for the tenth month in a row in March – and industry bosses have warned it could slump to 1980s levels in the event of a no-deal Brexit.
“A total of 126,195 cars were built in the UK last month, according to data from the Society of Motor Manufacturers and Traders. That is a 14.4% decline on the 147,505 vehicles produced in March 2018, and brings total output for the first quarter of 2019 to 370,289, a 15.9% drop from last year’s output of 440,530.”
“The U.S. economy showed clear signs of slowing during the first three months of the year, despite a much higher than expected figure for headline growth in gross domestic product (GDP) reported on Friday…
“…the details contained within the GDP report paint a much less healthy picture of the economy and confirm other indicators that suggest it continued to lose momentum at the start of 2019.”
“US sanctions came into effect on Sunday to block Venezuela’s economic lifeline of oil exports, in what Washington hopes will be a major blow in its fledgling campaign to topple leftist President Nicolas Maduro…
“Oil is the lifeblood of Venezuela’s crippled economy, accounting for 96% of exports.”
“The impact of U.S. sanctions on Iran’s economy is dragging on the broader region’s activity, according to the latest economic health check from the International Monetary Fund (IMF).
“The organization predicts a 1.7% contraction in the output of goods and services for non-Gulf Cooperation Council (GCC) oil exporters, after already having shrunk by 1.1% last year.”
“A row between Israel and the Palestinian Authority (PA) over deducted tax revenues reached new heights on Monday as the PA’s president, Mahmoud Abbas, refused to accept anything other than the full amount his government is owed.
“Tens of thousands of PA employees have been left out of pocket as austerity measures are imposed to help balance the authority’s books, and are struggling to survive.”
“A delegation of the IMF arrived in Pakistan on Monday to hold technical discussions for a bailout package to the cash-strapped country, days after Prime Minister Imran Khan met IMF chief Christine Lagarde in China.
“Pakistan is seeking USD 8 billion from the International Monetary Fund (IMF) to bail itself out from a severe balance-of-payments crisis that threatens to cripple the country’s economy.”
“South Korea’s economy shrank in the first quarter of 2019. That is a headache for policymakers in Seoul, but it might also have a wider significance. While Hong Kong itself might be sheltered to some degree, there may be troubled times ahead for other open economies in Asia whose fortunes are closely tied to China.
“US dollar strength, coupled with an elevated oil price, will only make matters worse.”
“China’s factory activity softened in April, official data showed Tuesday, in the latest sign that the world’s second-largest economy remains on uneven footing despite a raft of government stimulus measures.
“The Purchasing Managers’ Index (PMI), a key gauge of factory conditions, came in at 50.1 for the month, down from 50.5 in March, the National Bureau of Statistics said.”
“China’s Evergrande was supposed to scale back its towering debt pile this year, leading the country’s property sector in a much needed deleveraging. But a surge in US dollar borrowing has investors worried the burden will actually grow…
“Evergrande is China’s most highly indebted property developer, owing a total of more than $100bn, while the industry faces a wall of more than $300bn in maturing debts in the next two-and-a-half years.”
“Global military expenditure reached its highest level last year since the end of the Cold War, mainly fueled by increased spending by the United States and China, the world’s two biggest economies, a leading defence think-tank has said.
“In its annual report published on Monday, the Stockholm International Peace Research Institute (SIPRI) said overall global military spending in 2018 hit $1.82 trillion, up by 2.6 percent on the previous year.”
Read the previous ‘Economy’ thread here and visit my Patreon page here.
“…warning signs are flashing that another debt crisis is approaching, with concerns being raised not only by development campaign groups but by the International Monetary Fund and the World Bank. The IMF says 40% of low-income countries are either in debt distress or at high risk of being so. The Bank says debt in poor countries is a “rising vulnerability”.
“Explaining how the world came to be on the brink of debt crisis 2.0 is relatively simple. It all began in the depths of the financial crisis just over a decade ago, when the response to the threat of a second Great Depression led to interest rates being slashed, to central banks boosting the supply of money through quantitative easing (QE), and to countries supporting growth through packages of tax cuts and public spending.
“The biggest such fiscal package by far was announced by Beijing and it was instrumental not only in turning round the Chinese economy but also in hastening recovery elsewhere. China’s exceptionally high growth rates meant it needed oil, industrial metals and raw materials, and this was a boon to those developing countries rich in commodities…
“Poor countries, assuming that the commodity boom would go on forever, borrowed in foreign currencies… If another debt crisis does erupt, the international community is not well placed to deal with it. “
“A decade ago, in the midst of one of the worst financial crises in history, a white knight appeared. An enormous Chinese cash injection helped the world economy escape some of the worst pain from the credit crunch. It was a massive fiscal expansion, worth an estimated 7pc of Chinese GDP. Combined with interest rate cuts, it restarted the Chinese economic engine, helping revive others at the same time.
“On the brink of another downturn, a further rescue attempt arrived, as interest rates were slashed, dropping from 6.4pc to 4.7pc in 2015. Lending boomed once more.
“Now the world economy is wobbling again.”
“South Korean exports are seen contracting for a fifth straight month in April but at a slower pace, dragged by plummeting shipments to China and as Sino-U.S. trade frictions take their toll on Asia’s fourth-largest economy.
“Shipments likely shrank 5 percent in annual terms, a survey of 10 economists showed, extending the contraction that began in December. Exports shrank 8.2 percent on year in March.”
“The bleak economic outlook under the shadow of political uncertainty as well as the global economic slowdown has impacted Thai exports and the latest government stimulus is not likely to help much, say experts. The government is expected to present to the Cabinet tomorrow a Bt20-billion economic stimulus package.
“Finance Minister Apisak Tantivorawong had said earlier that the fresh cash injection was necessary to shore up the economy during the period of political transition before the new government takes office.”
“Bangladesh’s banking sector is facing a serious crisis. A key vulnerability that the World Bank stresses is the growing amount of non-performing loans.
“The amount of NPLs in June 2018 reached US$10.8 billion — 10.5 per cent of all outstanding loans in the economy. And it continues to grow.”
“Turkey’s unemployment rate surged to 14.7 percent between last December and February, its highest level in nearly a decade, according to official data published recently, as a result of the currency crisis last year. The gloomy data also included soaring youth unemployment rate of 26.7 percent, a record level in nearly two decades.
“Yalcin Karatepe, a Turkish economist, estimated the overall number of jobless Turks to stand around 7 million, stressing that the actual situation is more alarming than the authorities have claimed.”
“Spain’s unemployment rate ticked up by a quarter percentage point to 14.7% in the first quarter of 2019, when economists had expected a down tick, as the number of people claiming unemployment benefits increased by 50,000 to 3.35 million…
“…this is the biggest quarter-on-quarter increase in six years and it highlights a persistent weak link in an economy that has done nothing but grow since late 2013.”
“Tighter U.S. sanctions against Iran could fuel inflation to the highest level since 1980, according to the International Monetary Fund, as the Islamic Republic’s economy grapples with a weakening currency and tighter U.S. sanctions on oil exports.
“Consumer prices could average 50 percent higher this year after the U.S. moved last week to end sanctions waivers granted to a handful of countries buying Iranian oil…”
“Argentina’s peso fell back on Friday afternoon to post a record low close, giving up earlier gains after a tumultuous week that saw the currency battered to its weakest ever level and local debt pummeled as anxious investors fled…
“Argentine bonds and the peso have been hammered this week as uncertainty over a biting recession and high inflation frayed investor nerves about political upheaval in Latin America’s No. 3 economy ahead of elections in October.”
“This second type of climate risk and opportunity – the massive implications of climate change for the financial system – is a fairly new frontier in climate policy.
“It has developed rapidly over the last three to four years internationally, and is now reaching Australia, where both the potential risks and opportunities raised by finance sector and regulatory reforms to address climate change are immense.”
“If we find ourselves in a really serious downturn and conventional measures don’t offer any prospect of success, then it would be defensible to ward off an economic disaster by implementing a money-financed fiscal expansion [MMT].
“But there are severe risks attached to such an approach.”
Read the previous ‘Economy’ thread here and visit my Patreon page here.