“The country will rebound, as things reopen. The bounce will seem remarkable, given how big the drop was: Retail sales rose 18 percent in May, and the economy added 2.5 million jobs. But absent dramatic policy action, a pandemic depression is possible…
“…households are headed for a cliff. But not everyone will be affected by it equally. Rich workers, the ones with do-anywhere office jobs, have remained relatively untouched by job and earnings losses thus far. Wealthy families have seen their stock portfolios rebound to close to where they were in the winter. But poor workers—disproportionately black and Latino workers, as well as younger workers—have borne the heaviest employment and earnings losses. They entered this recession with no wealth cushion, many saddled with heavy rents and heavy debts. Income and job losses for them translate into a loss of demand economy-wide, absent federal intervention.
“If and when that federal intervention dries up, millions of families just keeping their head above water will sink, as lost jobs and canceled hours force them to stop paying their rent and go into arrears on their debt payments. Hunger, homelessness, forgotten plans to attend community college, babies growing up in stressed households: These are the stakes.
“This steep decline in consumer spending will hasten mass business failure, the second factor weighing on the economy… On top of that, numerous businesses—airlines, restaurants, live-events businesses, hotels, private schools, oil and gas companies—face severe and stubborn slumps…
“A third factor behind a possible second Great Depression is the budget crisis facing states and cities.”
“Statewide eviction protections in places such as Arizona and California expire at the end of July; in Florida, Virginia, Connecticut, and elsewhere, state-level eviction protections expire on or before July 1.
“The end of such orders are premature, to say the least: According to one estimate, nearly a third of Americans missed rent in June…”
“During the worst economic collapse in generations, U.S. households actually managed to put aside more money. It may not be enough to get them through the aftermath…
“the fiscal lifeline is a temporary one. When it’s withdrawn -– and Congress is already discussing the timetable –- fragile household finances may come under growing strain.”
“The coronavirus recession is pushing many companies into bankruptcy, a painful process that has led to layoffs, wiped out some investors and hurt the economy. But the chief executives of some of these businesses are doing just fine.
“Companies that are struggling to pay creditors and suppliers are managing to find millions of dollars to pay bonuses to their bosses. The payments, which are made just before a bankruptcy filing, appear to be legal and have been made by several companies.”
“It’s a tough time to be a mayor in America. Tax revenues have fallen off a cliff. Public sector layoffs have begun – a staggering 1.5 million jobs lost already – and there is no end in sight. The Upjohn Institute estimates that by the end of 2021, state and local governments will face a $1 trillion shortfall.
“To make matters worse, it is unclear if the federal government will do enough, or anything at all, to aid state or local governments.”
“Canada is enduring an economic crisis on the same grim scale [as the Great Depression], with more than three million out of work and the unemployment rate at 13.7 per cent.
“In February, prior to the crisis, more than 83 per cent of prime working-age Canadians were employed. Since then that figure has plunged to 73.7 per cent.”
“More than eight out of 10 English councils providing adult social care services are at technical risk of bankruptcy – or face a fresh round of cuts to services – because they cannot meet the extra financial pressures caused by the coronavirus pandemic, according to new research.”
“The West Midlands has become the first UK region to ask the government for billions of pounds in cash, to help stave off the worst of an “unprecedented” downturn.
“The region’s Conservative Mayor Andy Street unveiled the three-year plans today, calling for “immediate actions” to help stimulate the economy, and get back on the road to business recovery.”
“Due to the major economic crisis stemming from COVID-19, the European car market will narrow [odd choice of word] 25% in 2020, the European Automobile Manufacturers’ Association (ACEA) said on Tuesday.
“Car sales in the 27-member bloc is expected to drop by 3 million units, from 12.8 million in 2019 to 9.6 million in 2020, it stressed.”
“…this vital source of income [remittances] for Latin America is… being battered by the coronavirus.
“Unlike previous crises, where remittances have increased during times of trouble, this time, they’re expected to drop by 20 per cent, equivalent to about US$110 billion, according to a World Bank report released in April.”
“Argentina was facing a third year of recession in 2020 even before the coronavirus hit. Now with the pandemic’s economic shock, some analysts foresee a record contraction in the crisis-prone country…
“”This is going to be the worst, this year is completely lost,” said Gerardo della Paolera, an Argentine economic historian.”
“Battling against the effects of drought, devastating cyclone Idai and now the COVID-19 or coronavirus pandemic, starvation looms large over a large population in landlocked African country Zimbabwe.
“Just 40 kilometers from capital Harare, in Pararehwa village in Gormozonzi province, two boys had reportedly not eaten food for over four days.”
“Pakistan has a rough estimate of 1.2 million children on the street, a figure which is at least more than 10 years old. And since there has not been any recent census, in all probability their numbers may have increased…
“Markets have been closed down and then opened and then partially closed down. In such a situation street children and child beggars stand no chance of getting any help.”
“[Thailand’s] Police are on high alert after a cache of weapons and ammunition found on Tuesday in Tak’s Mae Sot district were suspected of being part of a plot to stir up political unrest.
“Citing intelligence information, national police chief Chakthip Chaijinda said it was likely the firearms were intended for use in a fresh round of political chaos…”
“Emerging-market inflation is dormant even as governments and policy makers hurl money into the economy. Investors shouldn’t count on it staying that way.
“Once the coronavirus pandemic is over, governments are going to struggle to wean themselves off the loose fiscal and monetary policies that have averted economic collapse.”
“As strict coronavirus lockdowns end, some central bankers have started hinting at another kind of exit — from emergency stimulus they launched just three months ago.
“Markets so far appear to be calling their bluff.”
“The global economy is limping back to life from the Covid-related disruption, but the recovery will be long and bumpy, according to Moody’s Investors Service.
““Global economic recovery will likely be prolonged. Q2 (April-June) 2020 will go down in history as the worst quarter for the global economy since at least World War II.”
“Global trade is expected to drop around 18.5% year-on-year in the second quarter of this year in a huge coronavirus-driven plunge which nonetheless could have been much worse, the World Trade Organization said Tuesday.”
“…deflation tanked the economy in the Great Depression, and it has not worked out that great for Japan in recent times either. Deflation shrinks an economy, slashes business profits, and hurts farmers because crop and dairy prices fall, ranchers because meat prices decrease, drillers because oil prices sag, and jobs because employers pull back.
“What is indisputable is that prices have been falling at a dangerous pace… Commodity prices, which we have argued are the best daily indicators of monetary conditions, are signaling a convulsive downward price spiral.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.
““One of the scariest things for people, even people who are managing, who are making payments, is that their budget is balanced on a knife edge,” says Lara Briehl, a debt counsellor in Washington state. “If they lose any source of income, the whole thing falls down.”
“Ms Briehl has worked for American Financial Solutions, a non-profit organisation, for three years. With the coronavirus outbreak paralysing the US economy and leaving millions out of work, her conversations with clients have taken on new urgency. Many of the people she speaks to work in the gig economy, with little access to unemployment benefits, or come from service industries. A lot are facing debt worries for the first time.
“Before the virus, Ms Briehl says, she referred clients to social welfare services — unemployment, food, and housing benefits — in perhaps 40 per cent of cases. Now she does so in more than two-thirds.
“This is what happens when at least 20m jobs disappear overnight in a country where total household debt had already reached $14.3tn, according to the US Federal Reserve, before the crisis hit.
“Payment holidays from lenders and unprecedented government support have kept debt delinquency from spiking… But a debt crisis may have been delayed rather than averted, experts say.”
“U.S. home sales dropped to their lowest level in more than 9-1/2 years in May, strengthening expectations for a sharp contraction in housing market activity in the second quarter following disruptions caused by the COVID-19 pandemic.”
“Britain came close to effective insolvency at the onset of the coronavirus crisis as financial markets plunged into turmoil, the governor of the Bank of England has said…
“Asked in an interview with Sky News what would have happened had the Bank not intervened, Bailey said: “I think the prospects would have been very bad. It would have been very serious.””
“British industrial output recorded its biggest quarterly fall on record during the three months to June as COVID-19 heavily disrupted operations, and a further decline is likely in the months to come, a survey showed on Monday…
“The CBI said the steepest falls in production came in the automotive, mechanical engineering and metals sectors.”
“Britain left the EU on 31 January, but talks on future relations have so far made little progress.
“The UK wants a trade deal with no tariffs or quotas and few strings, while the EU wants a closer alliance that would also cover security, climate and transport, and strongly aligned regulations.”
“The biggest weapon in the arsenal Europe assembled to counter the coronavirus economic collapse has yet to find the target.
“Less than 15% of funds made available by governments via banks as loan guarantees for business has been used.. The programs’ teething pains risk slowing the recovery from the deepest recession in memory, especially in Italy and the U.K.”
“…while the Fed has been able to ease concerns around corporate bonds at an aggregate level, even the most powerful central bank in the world cannot defy the financial laws of gravity governing defaults. What CDS traders euphemistically call “credit events” — when a company fails to make a payment on its debt, triggering a payout on the swaps — are happening with alarming regularity…
“…credit events will be coming to Europe sooner rather than later… Dutch retailer Hema’s swaps are widely expected to be triggered in coming weeks because of a debt restructuring. Hema could yet be overtaken by Wirecard…”
“In what could be one of the biggest financial frauds of recent years, shooting star German payments provider Wirecard has admitted €1.9 billion that auditors say are missing from its accounts likely “do not exist.”
“…the firm entered Germany’s prestigious DAX 30 index with great fanfare in 2018 after elbowing out traditional lender Commerzbank. Now Wirecard’s name is more frequently heard in association with Enron.”
“The accounting scandal engulfing controversial German payments provider Wirecard AG could have wide-ranging impacts on Australian banks, merchants and retail customers.
“Australian consumers are at risk of losing access to redemptions on prepaid cards issued by the German company. Westpac, Cuscal and Bendigo Bank could suffer fallout from Wirecard’s troubles, along with thousands of merchants, including travel operator, STA Travel.”
“Coronavirus cases may be dropping off but the economic impacts of the virus in Australia are only just beginning, with concerns mental health cases are yet to spike among young people…
“Director of youth mental health service Orygen and University of Melbourne professor Patrick McGorry said young people would be among the most vulnerable during a recession.”
“Thailand is searching for a new central bank governor to steer the economy through one of its biggest crises in decades as traditional policy options run out.
“Governor Veerathai Santiprabhob, 50, will leave the bank once he finishes his five-year term at the end of September, declining to stay on longer because of family reasons.”
“China’s economy contracted in the three months to June from a year earlier, signaling the start of a recession… Sluggish global demand remained a key drag on growth…
““The eventual return to growth does not mean a return to anything approaching the old levels of growth,” CBB International said in its quarterly report on China’s economy. “Until and unless global demand recovers more forcefully, the incremental quarterly improvement just seen will make for a contraction for full-year 2020.””
“Asian refiners may have hit a brick wall in their recovery from the virus-driven slump with the rebound in fuel demand not big enough to clear a massive glut built up over the last few months.
“Processors are unlikely to increase operating rates much further until the surplus is cleared and margins improve, with an Indian refinery executive predicting profits from turning crude into fuels such as gasoline will remain weak for another six months.”
“The coronavirus is spreading in Pakistan at one of the fastest rates in the world, and its overwhelmed hospitals are turning away patients.
“But the government is pushing ahead with opening up the country, trying to salvage a near-collapsed economy where millions have already slid into poverty from pandemic restrictions.”
“In the first four months of 2020, murders in Lebanon doubled from the same period last year. Car thefts jumped nearly 50% and burglaries 20%, according to a report by the Beirut-based research firm Information International, based on police data.
“As the currency plunges, more unrest is feared in a country with a tumultuous history and where sectarian tensions are never far from the surface.”
“Global textile orders are down by more than 40% on last year as a result of the coronavirus pandemic, new data shows, with the knitting sector experiencing the worst hit.
“According to a survey of 600 members of the International Textile Manufacturers Federation between 20 May and 8 June, on a global scale, current orders are down by 42% on average, on a global scale.”
“The global economy’s fragile recovery is facing a fresh hurdle as a surge in coronavirus cases threatens to keep businesses closed and consumers on edge…
“”The fight is nowhere close to being over,” said Tuuli McCully, the Singapore-based head of Asia Pacific economics at Scotiabank.
“”A second significant wave of infections in advanced economies is a huge risk for the global economy that is still in very early stages of recovery.””
“According to analysts at Goldman Sachs, at the end of April, just five companies — Microsoft, Apple, Amazon, Alphabet and Facebook — were up around 10 percent, but the rest of the S&P 500 stock index was down 13 percent.
“The outperformance of these companies has masked the real pain in the market, and eventually the macro-headwinds will catch up to them too.”
“The events leading to the Great Recession that started in 2007 are often referred to as a credit crisis. But that is true only in a narrow way. The recession was driven primarily by the bursting of a housing bubble and the related impacts on the financial system.
“The real credit crisis of our lifetime is turning out to be the coronavirus recession.”
“…an imminent banking crisis is now a near certainty, with most global systemically important banks in a weaker position than at the time of the Lehman crisis. US markets appear oblivious to this risk..
“It has been generally forgotten that the global economy was already facing a recession before the virus lockdowns.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.
“The science is screaming: Americans are in turmoil. More than 80% of U.S. adults report the nation’s future is a significant source of stress, according to a report Thursday from the American Psychological Association.
“Americans are the unhappiest they’ve been in 50 years, according to a COVID Response Tracking Study released Monday.
“And a survey published this month in the medical journal JAMA found three times as many U.S. adults reporting symptoms of serious psychological distress in April as they did two years earlier.”
“Economists worldwide are watching the extraordinary collapse of what was until recently a seemingly indestructible economy.
“The United States still has the world’s largest economy measured by gross domestic product (GDP). But among developed nations, it is now at or close to the bottom on most rankings of economic health.”
“Increasing evidence from credit markets is showing, that as I wrote in March, this recession will be worse than the 2007-2009 Great Recession.
“Credit markets are a very good place to see where the economy is headed…”
“We [in the UK] are in a jobs crisis… The Bank of England expects almost one in 10 of the workforce to be unemployed… But will unemployment fall as swiftly as it has surged?
“Yes initially, but… unemployment rockets in the crisis and falls like a feather in the recovery (averaging falls of just 0.55% a year).”
“One in four adults in the UK are experiencing food insecurity, which is likely to have left them susceptible to hunger and potential malnutrition, during the COVID-19 pandemic.”
“The global economy is on the brink of another depression after the pandemic, a leading Scottish economist has warned.
“Sir Anton Muscatelli, principal of Glasgow University and a member of the Scottish government’s council of economic advisers, said the British economy is heading for its biggest economic crisis since the Second World War and it will be hard to avoid widespread business failures and mass unemployment.”
“German authorities have expressed shock over a rampage of an “unprecedented scale” in the centre of Stuttgart, where hundreds of partygoers ran riot overnight and into Sunday, breaking shop windows, plundering and attacking police.
“Two dozen people, half of them German nationals, were provisionally arrested and police reported 19 officers hurt.”
“Germany’s coronavirus R number has leapt again – from 1.79 on Saturday to 2.88 on Sunday, official figures show…
“RKI said outbreaks had been reported in a variety of locations including hospitals and nursing homes.”
“European Central Bank head Christine Lagarde urged European Union leaders on Friday to quickly agree on a recovery package… “(The) EU economy is experiencing a dramatic fall,” she told the gathering, according to officials.”
“Dutch police deployed mounted officers and water cannons in The Hague on Sunday after clashes erupted following a protest against COVID-19 lockdown measures…
“Police deployed mounted officers and a water cannon shortly before 15:00 CET to disperse the protesters and urged people to stay clear of the area.”
“Let the [Nigerian] Federal Government ease the lockdown and let the economy move because we can’t afford the current lockdown for six months, otherwise the country will collapse.”
“South Africa received a financial boost of $1 billion (R17bn) from the New Development Bank, formerly known as the BRICS Bank, to help government mitigate the social and economic bloodbath caused by the Covid-19 pandemic.
“However, experts have warned Finance Minister Tito Mboweni to be careful of the terms of the agreement.”
“Protesters demanding jobs in Tunisia’s energy sector blocked roads with blazing tyres on Sunday after the arrest of an activist, as security forces responded with tear gas.
“For weeks, demonstrators have erected a protest camp in the southern Tataouine region demanding authorities make good on a 2017 promise to provide jobs in the gas and oil sectors to thousands of unemployed.”
“Algeria has intensified a crackdown on an anti-government protest movement, targeting social media users in a bid to stop demonstrations resuming once coronavirus restrictions end…
“Said Salhi, vice president of the Algerian League for the Defense of Human Rights.called the moves “an irresponsible attack, verging on provocation, against fundamental human rights.””
“Maids have been dumped outside a Beirut embassy, amid an ongoing economic crisis in Lebanon, heightened by the coronavirus pandemic. Lebanon’s economy is collapsing with the country’s currency losing 70% of its value in the past six months.
“Now many of the country’s middle class claim they can no longer afford to pay their domestic maids.”
“…after the Lebanese economy crashed, causing the lira to tumble, along with the coronavirus crisis a few months later, life has become extremely difficult for the [Syrian refugee] family…
““After corona there’s no food anymore. You go to get produce but you come back because you can’t afford it.””
“On top of war and the coronavirus pandemic, Yemen faces looming economic disaster as a crisis gripping its main benefactor Saudi Arabia dents remittances and leaves state coffers running dry…
“Saudi Arabia may also be reassessing its role as what observers call a “regional ATM” after its expensive intervention in Yemen produced few tangible gains.”
“The Iranian rial fell to its lowest ever rate against the U.S. dollar on the unofficial market on Saturday, a day after Tehran’s rebuke by the U.N. nuclear watchdog increased the pressure from U.S. sanctions and the coronavirus outbreak.”
“Russia’s central bank slashed interest rates on Friday to the lowest level since the collapse of the Soviet Union, pledging to consider the need for even lower rates amid waning inflationary risks and a shrinking economy.”
“This month’s outbreak of coronavirus in Beijing has prompted concerns that a second wave of the pandemic could upset China’s nascent economic recovery…
““Even without a Wuhan-style shutdown, the local economy will suffer and fears of contagion will propagate,” said Aidan Yao, an economist at Axa Investment Managers in Hong Kong. Daniel Shane.”
“Renowned Chinese epidemiologist Zhang Wenhong (張文宏) said Saturday (June 20) that the coronavirus pandemic is likely to last until the end of 2020 or the beginning of 2021 at the earliest, and he warned that a resurgence of the disease in the fall is inevitable.”
“After North Korea closed its border with China following the outbreak of COVID-19, North Korea-China trade, including both imports and exports, has fallen to practically zero. ..
“…the combination of economic sanctions and the coronavirus pandemic has plunged the North Korean economy into an unprecedented crisis.”
“The Indonesian economy faces gloomier skies this year as the Covid-19 (coronavirus) pandemic has yet to show any signs of subsiding, forcing government officials, the central bank, economists and international institutions to project weaker and weaker growth as the outbreak unfolds.”
“Brazil, the country worst hit by coronavirus after the United States, officially passed 50,000 coronavirus deaths on Sunday, a blow for a country already grappling with more than one million cases, rising political instability and a crippled economy.”
“Oil revenue, the financial lifeline of Venezuela, is quickly drying up, adding to the growing instability of Nicolas Maduro’s embattled regime.
“Crude exports that once accounted for 95% of foreign currency inflow to the country tumbled by almost half this month, after hitting a 73-year low in May… Oil storage tanks in the country are nearly full…”
“In an extraordinary case that will have profound economic, political and social consequences for the impoverished South American country, the Banco Central de Venezuela (BCV) is seeking an order that would force the Bank of England to release $1bn of its gold.”
“As shortages become more acute in the communist-run country, some Cubans fear a return to the Special Period of the 1990s, after the Soviet Union collapsed…
“Cuba’s economy, like other countries around the world, has been hit by the pandemic. The World Bank has projected Latin America’s GDP will contract by 7.2 percent this year. But in Cuba’s case, the economy was already fragile before the pandemic.”
“Three influential figures in Costa Rica’s tourism sector asked the government to set a firm date for reopening the nation’s borders to international tourism.
“In a letter published this week by the Costa Rican Hotel Chamber (CCH), its president, Javier Pacheco, said the hotel sector “can no longer endure” the economic crisis caused by the coronavirus pandemic.”
“Global action is being urged to stop a humanitarian crisis unfolding at sea. Crew changes on merchant ships have been stopped for months, putting those onboard at risk of depression and injury.
“Industry leaders are calling for stranded seafarers to be recognized as key workers, have visas waived and given access to flights to return home.
“Supply systems and the global economic recovery are also at stake, as shipping is the lifeblood of the global economy, transporting 90% of global trade.”
“Five cruise ships have been detained in UK docks after trapped crew went on hunger strike over unpaid wages amid coronavirus… Coronavirus lockdown meant many crew members couldn’t return home despite being on board for more than a year in some cases.”
“Oslo-listed MPC Container Ships has warned it could go bankrupt and will face severe liquidity strains from as early as next month.
“In a presentation to bondholders on Friday, the company, one of the fastest growing boxship tonnage providers in recent years, said it will need to sell ships or risk going bankrupt unless it can seal a $200m loan soon.”
“As they wait to see whether they’ll ever get back in the cockpit, pilots have turned to a mishmash of odd jobs and second-choice careers…
““We will do anything we can by problem solving and managing risks to protect our families,” said Chris Riggins, a pilot for Delta Air Lines Inc. and a spokesman for the Air Line Pilots Association. “If that means working in a grocery store, pilots will do it.””
“According to Morris, “If airlines started charging ticket prices at a level to make profit, with load factors that may be only 40 percent, they would have to double the fares. They are damned if they do and damned if they don’t. If they sat tight and fly no flights, eventually, they would go bankrupt anyway.””
“…the amount of stored oil that needs to be burnt through before there is room for producers to pump more is huge…
“By the end of this month, global stockpiles are expected to be about 2.7 billion barrels above where they were at the end of 2013. That’s nearly four times the excess seen after the first shale boom in early 2017, when oil prices collapsed toward $25 a barrel.”
“US shale companies could be forced to write down at least $300bn of their assets in the second quarter, as operators begin to account for the oil-price collapse on their balance sheets, according to a new study.
“The huge impairments [are equivalent to] about half the net value of the companies’ property, plant and equipment…”
“If the oil prices remain below $40 per barrel until the end of 2020, more than 50 percent of the oilfield services and equipment companies [Arabian Gulf] are likely to face bankruptcies this year, according to a senior energy expert.”
“Defaults in China’s dollar bond market are accelerating amid the economic fallout from the coronavirus. Hilong Holding Ltd., an oil equipment and services company, became the latest to default on Monday when it failed to repay a $165 million dollar bond.”
“Beijing’s latest coronavirus outbreak shows the threat the pathogen poses to food supply after it forced the closure of the city’s largest wholesale market for meat, fish, fruit and vegetables…
“In Europe, South America and the United States, meat processing plants have been hotspots for the spread of the virus, infecting thousands of workers and causing food security jitters.”
“One of the surest signs of the financialization of everything and the growing disconnect of finance from reality is the credit default swap (CDS). The CDS is essentially insurance for loans and bonds. The buyer pays the seller a premium every month. If the instrument insured defaults, the seller provides a predetermined payment to reimburse the CDS buyer.
“Now here’s the weird thing: An investor doesn’t even have to own the loan or bond to insure it. It’s like me taking out an insurance policy on your home against fire when I have no ownership or interest in the home. In fact, I have every incentive to make sure your house burns down. Do you see any problem with that?”
“It’s the banking world’s version of the rich getting richer. A record $2 trillion surge in cash hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January, according to FDIC data.
“The wall of money flowing into banks has no precedent in history.”
“Central banks have unleashed trillions of dollars in stimulus, using their full recession toolkits to fight what could be the worst peacetime downturn in 100 years. Governments have followed suit with trillions of additional dollars. In the face of an uncertain future, what’s left for policymakers to do?
“It’s a question economists and investors are asking with increased urgency…”
“It can be said without fear of contradiction that the government’s strategy for dealing with the economy’s pandemic collapse is utterly simple: Throw money at the problem. Lots of money…
“This was the mother of all bailouts — and it’s not finished yet.“
“Two months after its dire predictions of the steepest recession in almost a century, the International Monetary Fund will release new global economic forecasts this week that will probably look even worse.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.
The financial system is very unwell, in fact terminally so – riddled with imbalances and distortions. As we push it to the limits of its elasticity in our attempts to maintain growth, it no longer sends clear signals about what anything is actually worth:
“Currency analysts are lamenting an avalanche of cheap money from the US Federal Reserve, which they say has created bizarre conditions in which exchange rates track stocks rather than economic fundamentals.
“For decades, strategists have analysed exchange rates on the basis of the outlook for growth and interest rates in the countries concerned. Generally, the better the prospects, the better the currency can be expected to perform.
“But that relationship has broken down since March’s market rout, analysts say. As the global economy moves towards one of its worst recessions in history, currencies that are usually most sensitive to growth have become the best performers against the US dollar.”
“Life used to be so easy for central banks. A tweak here and a tweak there was all it took to keep inflation under control.
“Now they are creating money in unprecedented amounts and contemplating negative interest with only the sketchiest idea of how things will pan out. It is much more complex and much more dangerous, not least for central banks themselves.”
“In a new report, economists writing for the Brookings Institution estimate that the United States could see “on the order of 300,000 to 500,000 fewer births next year” as a result of the economic recession triggered by the novel coronavirus.
“The economists, Melissa S. Kearney and Phillip Levine, derive their estimates from data on birthrates during the Great Recession and the 1918 flu pandemic.”
“The Bank of England is expected to build back its war-chest for fighting the coronavirus crisis on Thursday by announcing an increase of at least 100 billion pounds in its bond-buying programme.
“The British central bank has already spent most of the 200 billion pounds of fresh firepower it gave itself in March as it soaks up much of the government’s COVID-19 borrowing.”
“Scotland’s GDP plunged by 18.9% during April – the first full month of lockdown – adding to fears that it would have the worst performing economy in the developed world.
“Senior SNP figure Andrew Wilson, who chaired his party’s Growth Commission, issued the warning as the data laid out the challenge facing the government.”
“The Deputy Governor of the Central Bank [of Ireland] has said while the financial system is stronger than a decade ago, its resilience is not limitless.
“Sharon Donnery made her comment as she addressed an online presentation hosted by the Institute of International and European Affairs.”
“A campaign has been launched to raise awareness of food security and to encourage [Irish] people to grow their own produce.
“Those behind the BiaHero initiative say the Covid-19 crisis has exposed the vulnerability of the global food system. Only 1% of Irish farms grow fruit and vegetables so large quantities are imported.”
“Australia lost a further 227,000 jobs between April and May, resulting in a total loss of 835,000 jobs in seasonally adjusted terms since March and a 0.7% jump in unemployment to 7.1%…
“The figures intensified the political debate about how to handle the expiry of jobkeeper in September…”
“New Zealand entered recession for the first time in almost a decade as the coronavirus pandemic led to the nation’s biggest quarterly contraction in 29 years…
“New Zealand is bracing for a severe contraction in the three months through June after it responded to the pandemic by closing its border and imposing a strict nationwide lockdown that stayed in place until mid-May.”
“The World Bank forecasts that Brazil’s economy will shrink 8 per cent this year as the broad shutdown weighs on businesses and consumers alike….
“Such a slump in Brazil’s gross domestic product would lead to a wave of corporate bankruptcies, soaring government debt and surging unemployment in a nation with abject public finances.”
“Chile’s Central Bank revised its GDP projections for the year on Wednesday, predicting a fall of 5.5 to 7.5 percent due to the effects of the coronavirus pandemic.
“It would be the largest contraction in 35 years and comes three months after the bank projected a fall of just 1.5 to 2.5 percent.”
“Argentina’s debt restructuring talks, in a tense final stretch, hit a roadblock on Wednesday with the government determined not to cede further ground…
“…after making an improved offer and a key creditor group warning that negotiations had failed.”
“South African tourist towns flounder as safari tourism collapses. Poaching set to increase as rural South African communities reliant on Safari tourism face starvation while the tourism industry in Africa’s most developed economy grinds to a halt.”
“…today, half of Zimbabwe’s population is struggling to feed itself, high inflation rates – which helped destroy the economy over a decade ago – have returned.
“Zanu-PF has stopped telling the world that Zimbabwe is “open for business”
“…and has reverted to its old habit of accusing unnamed Western nations of fomenting unrest and of conspiring with local critics to undermine the government and the economy.”
“Hundreds of thousands of pigs have been culled by Nigerian farmers in response to an explosion of African swine fever… the recent wave of infections is the worst by far.
““We have never experienced anything of this scale in the past. This is the worst and largest outbreak ever,” says Ayo Omirin, a pig farmer at Oke-Aro, who has lost more than 600 of his 800 pigs.”
“Atiku Abubakar, has again, warned that Nigeria is in dire financial crisis under the Buhari administration.
“The former vice president warned that Nigeria risks a situation where its revenue cannot sustain debt servicing obligations – The Buhari’s government spends a lion’s share of Nigeria’s national income servicing debts.”
“Lockdowns, border closures and the global fall in commodity and oil prices are all wreaking havoc on fragile sub-Saharan African economies.
“This has been exacerbated by the continent’s substantial debt burden… The continent has no greater creditor than China.”
“The United States has imposed some of the toughest sanctions yet against the regime of Syrian president Bashar al-Assad…
“It comes at a tricky time for Mr Assad as the country staggers through an unprecedented financial crisis that has sparked rare anti-government protest in regime-held areas.”
“Following the demand and oil price crashes, Saudi Arabia has idled offshore rigs and postponed the start of a US$18-billion expansion project…
“Saudi Aramco is also suspending the project for expansion of the offshore Marjan and Berri oilfields for a period of between six and twelve months.”
“Russian President Vladimir Putin has been struggling. The pandemic did not give him a boost, and in fact just solidified the downward trend his approval rating has been suffering over the past two years.
“Austerity measures, such as a particularly unpopular pension reform, have caused anger in the general public, even among his supporters. The collapse of oil prices and a looming economic crisis – a second for Russia in the past 10 years – have also severely affected public opinion.”
“Hertz, which declared bankruptcy under Chapter 11 last month, disclosed its decision to freeze the offering on Wednesday in a regulatory filing. Earlier in the day, SEC Chairman Jay Clayton said on CNBC that the agency had informed Hertz that regulators had “comments” about its proposed stock offering.
“Clayton also said he expected Hertz to put the transaction — which is highly unusual for a company that has filed for bankruptcy protection — on hold until the SEC’s comments had been addressed.”
“Asian stocks and Wall Street futures fell on Thursday as spiking coronavirus cases in some U.S. states and in China dented hopes of a quick global economic comeback from the pandemic.”
“Volatile markets and the economic fallout from the virus could wipe out as much as $16 trillion of global wealth this year and hinder growth for the next five years, according to a study by Boston Consulting Group.
“By comparison, the 2008 financial crisis erased $10 trillion.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.
“The global economy is on track for a more significant contraction than the International Monetary Fund estimated in April, the institution’s chief economist said Tuesday.
“When European countries were in their first weeks of lockdown, the IMF said the global economy would suffer the worst financial crisis since the Great Depression of the 1930s. At the time, it forecast a contraction by 3% in 2020.
[For ref, the global economy as a totality needs to be growing at around +2.5% p/a – anything less is considered a recession. 2009, the worst year of the Global Financial Crisis saw a contraction of just -0.1%].
“Now, despite some economies beginning to reopen, the fund has warned that the decline could be even worse.”
“The world is seeing a “striking divergence” between financial markets and the real economy, which may lead to greater volatility and sharp corrections if health and economic news worsen in the wake of the Covid-19 pandemic, according to the International Monetary Fund…
““This divergence may portend greater volatility in financial markets,” she said in a blog post. “Worse health and economic news can lead to sharp corrections.””
“On 8 June, the business cycle dating committee of the National Bureau of Economic Research declared that economic activity in the US had peaked in February 2020, formally marking the start of a recession…
“The committee’s relative speediness [in making the announcement] this time is a testament to the unprecedented suddenness of the pandemic-induced collapse.”
“More U.S. companies have sought bankruptcy protection during the last two days than in the prior two weeks combined…
“This week’s filings pushed the year’s bankruptcy total to 111, the most since 2009 for the first six months of a year, data compiled by Bloomberg show.”
“The Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world’s largest economy back to life, according to people familiar with the plan.
“A preliminary version being prepared by the Department of Transportation would reserve most of the money for traditional infrastructure work, like roads and bridges, but would also set aside funds for 5G wireless infrastructure and rural broadband, the people said.”
“The Institute for Employment Studies claims UK unemployment has risen more in the last two months than it did in the first year of the Great Depression…
“Before the crisis began, there were 1.5 claimants for every vacancy. Right now, IES estimates that that figure has increased to 8.5 claimants per vacancy.”
“The head of the City watchdog has told banks to prepare for a surge in business customers falling behind on their debts, but warned firms must be treated fairly to avoid a replay of 2008 when trust in lenders collapsed.
“Speaking to a virtual roundtable of bank bosses on Tuesday, the Financial Conduct Authority chairman, Charles Randall, said…
“…it was “an inescapable fact” that some UK businesses would accumulate unaffordable debt during the Covid-19 crisis but that those debts must be dealt with “quickly and fairly”.”
“The French government has vowed to bring an end to violence in the usually placid eastern city of Dijon after it was hit by a fourth night of unrest allegedly linked to score-settling by members of the Chechen community…
“Some reports suggested Chechens had travelled to Dijon from all over France as well as neighbouring Belgium and Germany.”
“Europe faces a fresh banking crisis if the economic shock caused by coronavirus stretches into 2021, according to a new paper by a network of think tanks in the European Union…
“…it would only take a fifth of loans not being repaid across EU banks to wipe out their reserves.”
“Economists have upgraded their growth forecasts for the Australian economy, but there is little doubt among them that country is suffering its first recession in nearly 30 years, and possibly its deepest since the 1930s.
“The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months in the future, confirms the economy is in recession.”
“Weak global appetite for cars and slowing business spending could drag on Japan’s export-led economy, as China-bound trade remains weak, dashing hopes mainland demand could offset the weakness seen in other major trading partners.
“Official data out on Wednesday showed Japan’s exports fell 28.3% in the year to May, the largest slump since September 2009.”
“A prized Densuke watermelon grown in northern Japan sold at auction on Monday for about $2,000. That’s a lot for a piece of fruit, but down more than 70% from last year’s season-opening auction.
“It was another sign that Japan, the first modern advanced economy to tackle deflation more than two decades ago, is facing the return of its stubborn foe.”
“India has reacted with shock and caution to the worst loss of life on its border with China in 60 years, with senior leaders largely silent on the hand-to-hand clashes in remote, inhospitable Himalayan territory in which at least 20 Indian soldiers died.
“Beijing also offered little information about the violence, but state media appeared to acknowledge on Tuesday that it had also led to Chinese casualties.”
“The world’s two biggest economies have become less competitive due to their ongoing trade war, which seems to have no short-term resolution in sight.
“Both China and the US have slipped down the World Competitiveness Rankings for this year.”
“China has been filling its oil storage facilities at record pace, propping up global energy prices at a time demand has plummeted due to shutdown orders designed to contain the coronavirus pandemic.
“Over the first six months of the year, Chinese oil inventories climbed by 440 million barrels a day, dwarfing the previous record of 111 million barrels a day set by the United States in late 2014 and early 2015…”
“After flooding the U.S. with crude earlier this year, Saudi Arabia has all but cut off the taps to the American oil market. The kingdom has exported just one cargo to the U.S. so far in June, equivalent to about 133,000 barrels a day, tanker-tracking data compiled by Bloomberg show.”
“Energy demand is as good a barometer of global economic conditions as any other indicator. If the International Energy Agency’s forecasts prove accurate, we can forget optimistic projections of “V-shaped” recoveries…
“It expects demand to fall by 8.1 million barrels a day this year – the biggest fall on record – before rising 5.7 million barrels a day, to 97.4 million barrels a day, in 2021. That would still leave demand 2.4 million barrels a day short of 2019 levels…”
“Brazil’s retail sales fell the most ever in April in the latest sign that the coronavirus pandemic is engulfing Latin America’s largest economy…
“The figures illustrate the devastation that the coronavirus outbreak is inflicting on consumption, which has historically been a key driver of Brazil’s economic growth. The retail sales dive also follows record plunges from industrial production to formal job creation…”
“The coronavirus crisis is pushing 40 million people into food insecurity in South and Central America and the Caribbean, the UN warned Tuesday, calling for urgent action to avert a “hunger pandemic”.
“The UN’s World Food Programme says that in the 11 countries where it operates in the region, the number of people facing severe food insecurity has increased from 3.4 million at the start of the year to 14 million.”
“While the world economy was locked down by coronavirus, with the heavily indebted corporate sector at grave risk of default, PE firms were circling carcasses of bankrupt firms and markets felled by the lethal pandemic.
“According to the Financial Times the sector has raised $1.5 trillion of “dry powder” for acquisitions, while US distressed-debt funds are hoping to raise more than $67 billion – a capital-raising effort that would smash the previous $44 billion record of 2008. These trillions will be used to scavenge bargains in whole sectors of the economy. PE firms intend to profit from the current crisis much as they did after the 2008 financial meltdown.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.
“In perhaps the most peculiar of the developments flowing from the US central bank’s novel policies was last week’s approval by a Delaware judge of a plan by Hertz to raise up to $US1 billion ($1.4 billion) of new equity by selling shares to the public – while it is in bankruptcy!
Shares in the fallen car rental company have, bizarrely, traded at prices as high as $US5.53 since the company filed for bankruptcy with $US19 billion of debt, although they closed at $US1.88 on Monday. The New York Stock Exchange is planning to de-list the shares, underscoring the extent of the risk investors are taking…
“With cash pouring into the junk bond market and the Fed acting as a form of underwriter for even risky corporate debt, perhaps it isn’t surprising that investors are taking risks that they might not have contemplated previously…
“The Hertz case is… an extreme example of how the Fed’s interventions distort markets by removing risk from any price signal…
“The US corporate sector was already highly-leveraged even before the coronavirus outbreak… More concerning, since the financial crisis – even as the debt levels have climbed – there has been a steady deterioration in the quality of the credit. About a third of the corporate bond market is now in the form of leveraged or non-investment grade bonds…
“A problem for the future, and one that has been present since the financial crisis, is how the Fed and its central bank peers elsewhere can extricate themselves from the unconventional settings they’ve created and the unintended consequences and side-effects of those settings, the most potentially threatening of which are the excessive leverage and risk-taking they have encouraged.
“On the evidence of the past decade, there is no exit path without implosions in markets, another financial crisis and, at best, another very deep recession. In these circumstances investors are clearly signalling that they expect more of the same.”
“The quantity of money in the US (as measured by M3) rose by 7.5 per cent in April 2020. With further strong money growth in May, the annual rate of growth of money has shot up to a shocking 25.5 per cent…
“The rest of the world should be very concerned about the effects of the Fed’s policies over the next two to three years. In sharp contrast to the response during the global financial crisis of 2008, not only have both treasuries and central banks coordinated unprecedented economic stimulus policies to address the current crisis, but bank regulators have also significantly eased bank capital requirements.”
“Consumption of drugs and alcohol has increased in the U.S. during the pandemic, creating an anticipated need for treatment in coming months and years.
“But, at the same time, there are now a host of financial challenges that threaten the existence of most addiction treatment centers in the country.”
“The Trump administration doesn’t want to extend the $600-a-week enhancement to unemployment benefits past July 31, according to Larry Kudlow, White House economic advisor.
“The White House and congressional Republicans want to provide a temporary cash bonus to those who find a job.”
“The UK’s coronavirus jobs nightmare unfolded further today as the number of benefit claimants surged to a record 2.8m, around 600,000 workers lost their jobs and vacancies collapsed.
“The Office for National Statistics’s data showed claimants have more than doubled since March, with a further 529,000 people submitting claims in May…”
“It is no exaggeration to say the United Kingdom is in deep trouble, lurching from one catastrophe to another.
“As soon as the economy gets over the coronavirus crisis, Britain faces a new disaster over Brexit… a hard Brexit shock could be the last straw… the pound could collapse under the weight of a British crash.”
Global auto sales were already declining in 2009 and German industrial output was already contracting. Now we have the pandemic on top.
“The coronavirus pandemic, which shattered supply chains and forced automotive manufacturers to close their plants for weeks, caused passenger car production in Germany to tank in the first five months of 2020. Now sluggish demand and slow recovery in global markets is likely to puts tens of thousands of job in the sector at risk in Germany.”
“New tensions on Monday flared in France’s eastern city of Dijon after it was rocked by a weekend of unrest blamed on Chechens seeking vengeance for an assault on a teenager…
“After three successive nights of violence, early Monday evening some 150 people, some hooded and armed, again assembled in Dijon, setting rubbish bins and a car on fire.”
Deflation for Italy:
“Rome, June 15 – ISTAT said Monday that its consumer price index was down 0.2% in May, both with respect to the same month in 2019 and compared to April this year. The national statistic agency had put the inflation rate at -0.1% in its preliminary estimate.”
“The European Union has been relaxing its rule book for banks — painstakingly built up in the decade or so since the financial crisis — as it tries to manage the impact of coronavirus. Unfortunately, the move might create big problems if economic activity fails to recover.”
“Public trust in the European Central Bank appears to have dropped by more than in other governing institutions over the past decade…
“Having pushed monetary policy close to its limits since the global financial crisis, the ECB has faced a barrage of criticism and legal challenges… The bank has launched a strategy review, but the exercise had to be postponed due to the coronavirus crisis – which also forced the bank to take even more radical measures.”
““Everybody is fed up with the lockdown and wants to return to normal life as quickly as possible,” said José Martínez, a cafe owner in the southern city of Seville, as he wiped down outdoor tables with disinfectant.
““But you can certainly bet that nobody will take responsibility if the result is another wave.”“
“The coronavirus shutdowns have seen close to one million jobs disappear in just two months with new figures adding to fears Australia’s unemployment will hit ten per cent for the first time since 1994…
“…as the health pandemic caused an even faster downturn than the 1930s Great Depression.”
“Australia’s lucrative exports of natural gas are being hit by a global supply glut and the coronavirus crisis destroying demand, with dozens of cargoes either anchored offshore or idling at sea as Asian buyers delay deliveries…
“…the worst may be yet to come for the gas industry as demand collapses in key Asian markets and storage facilities approach capacity.”
“Peru, one of the countries worst hit by the coronavirus pandemic, has seen GDP plummet by more than 40 percent year on year in April, the government said Monday.
“Mining production fell sharply in one of the world’s largest producers of copper, gold and silver, contracting by more than 42.29 percent in April.”
“A group of 37 members of the Peruvian Jewish community flew to Israel on a special charter flight amid high rates of COVID-19 in their native country and street riots that have broken out as a result of a scarcity of food and medical supplies.”
“South America is the region of the world where peace deteriorated most last year, followed by Central America and the Caribbean…
“…according to the “Global Peace Index 2020” report, with peacefulness expected to drop globally as a result of COVID-19.”
“Syrian government salaries have become nearly worthless.
“Protests against falling living standards have broken out in the southeast. The Syrian pound is worth so little that people have posted images on social media of bank notes used to roll cigarettes. The government is so strapped for cash that it is squeezing wealthy businessmen to help fund the state.”
“The heavily indebted country [Lebanon] has been sliding deeper into trouble since October, when a combination of slowing capital inflows and protests against corruption spilled into a political, banking and financial crisis.
“Hopes of a quick rescue deal with the International Monetary Fund have faded, with talks complicated by a row between the government and central bank over the scale of the losses in the financial system.”
“Global foreign direct investment flows are likely to plunge by 40 percent this year due to the coronavirus crisis, the UN said Tuesday, with worse expected in 2021.
FDI will shrivel from its 2019 value of $1.54 trillion to below $1 trillion for the first time since 2005, said the United Nations Conference on Trade and Development.
“”The global economy is in a direr situation than it was during the 2008 financial crisis,” UNCTAD secretary-general Mukhisa Kituyi told reporters. “The pandemic represents a supply, demand, and policy shock for FDI.””
Rogoff (This time really is different):
“The political ramifications will be just massive. There were trends already in place, such as de-globalization and populism, and my guess is those trends will be reinforced—and not just in the United States.
“Obviously, the concern about inequality just blows up in this situation with 20% unemployment. People who don’t have adequate space and adequate resources are suffering inordinately.”
You can read the previous ‘Economic’ thread here and visit my Patreon page here.