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Fireworks are going off in Germany again in yet another battle between Wolfgang Schaeuble, Germany’s finance minister, and the ECB.

Schaueble dismissed a suggestion this week by ECB head Mario Draghi that Germany should use fiscal room for manoeuvre to decrease its export surplus.

Reuters reports Germany’s Schaeuble blames ECB for German Export Surplus.

Germany has no plans to reduce its export surplus, Finance Minister Wolfgang Schaeuble said on Friday, as the European Central Bank (ECB) has not changed its monetary policy which has led to a weaker euro which in turn boosts German exports.

“Even before the European Central Bank decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Schaueble told reporters.

“If the surplus in the euro zone as a whole rises by a total of 3.6 percent, one should not be surprised that the German export surplus has also risen, if not by 3.6 percent but by 2 percent,” he said before meeting other European finance ministers.

When asked whether he had any plans to decrease Germany’s export surplus, Schaeuble said: “I haven’t heard that the ECB is changing its monetary policy.”

The Munich-based Ifo economic institute has said Germany’s current account surplus would probably hit a new record of 278 billion euros ($313.28 billion) this year, overtaking that of China again to become the world’s largest.

Resounding No

I take that as a resounding “no” to Draghi’s proposal that Germany should reduce its export surplus.

Target2

No discussion of eurozone problems would be complete without a discussion of Target2, an abomination created by the eurozone founders and one of the fundamental flaws of the euro.

…click on the above link to read the rest of the article…

Are You Kidding Me? Chinese Exports Plunge 25.4 Percent Compared To Last Year

March 9, 2016

Are You Kidding Me? Chinese Exports Plunge 25.4 Percent Compared To Last Year

We just got more evidence that global trade is absolutely imploding. Chinese exports dropped 25.4 percent during the month of February compared to a year ago, and Chinese imports fell 13.8 percent compared to a year ago. For Chinese exports, that was the worst decline that we have seen since 2009, and Chinese imports have now fallen for 16 months in a row on a year over year basis. The last time we saw numbers like this, we were in the depths of the worst economic downturn since the Great Depression of the 1930s. China accounts for more global trade than any other nation (including the United States), and so this is a major red flag. Anyone that is saying that the global economy is in “good shape” is clearly not paying attention.

If someone would have told me a year ago that Chinese exports would be 25 percent lower next February, I would not have believed it. This is not just a slowdown – this is a historic implosion. The following comes from Zero Hedge…

Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline – the longest ever.Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.

So much for that whole “devalue yourself to export growth” idea…

I don’t know how anyone can possibly dismiss the importance of these numbers. As you can see, this is not just a one month aberration. Chinese trade numbers have been declining for months, and that decline appears to be accelerating.

…click on the above link to read the rest of the article…

I’m in Awe at Just How Fast Global Trade is Unraveling

February 16, 2016

I’m in Awe at Just How Fast Global Trade is Unraveling

It simply doesn’t let up. Global trade is skidding south at a breath-taking speed.

China produced a doozie:

The General Administration of Customs reported on Monday that in yuan terms, exports dropped 6.6% in January from a year ago while imports plunged 14.4%. In dollar terms, it was even worse due to the depreciation of the yuan since August: exports plunged 11.2% and imports 18.8%, far worse than economists had expected.

And so the trade surplus, powered by those plunging imports, jumped 12.2% to a record $63.3 billion.

This came on top of China’s deteriorating trade numbers last year, when exports had fallen 1.8% in yuan terms while imports had plunged 13.2%. Imports have now declined for 15 months in a row. That’s tough for the world economy.

OK, Chinese trade data can be heavily distorted by fake invoicing of “imports” from Hong Kong, a practice used to maneuver around capital controls and send money out of China. Imports from Hong Kong in January soared 108% from a year ago, even as shipments from other major trading partners declined. Bloomberg:

China has acknowledged a problem with fake invoicing in the past. In 2013, the government said export and import figures were overstated due to the phony trade to bring money into the mainland. Trade data for December suggested the practice had flared up again, this time to get money out.

In January, we have the additional fudge factor of the Lunar New Year. Chinese companies were closed all last week. It caused all kinds of front-loading in December and early January followed by a wind-down in late January and early February.

Oh, and India:

On Monday, the Ministry of Commerce and Industry in Asia’s third largest economy reported that exports of goods plunged 13.6% in January year-over-year, the 14th month in a row of declines.

…click on the above link to read the rest of the article…

Canada Rebels against the Destruction of the Loonie

January 19, 2016

Canada Rebels against the Destruction of the Loonie

The fear of “currency instability.”

“Without precedent” — that’s what National Bank of Canada’s chief economist Stéfane Marion called the wholesale destruction of the loonie.

The Canadian dollar is in a tailspin. Rarely has it tumbled so far so fast, and against so many currencies. The steepness of the CAD’s depreciation against the USD is without precedent, -33%, or 3.5 standard deviations, in 24 months.

In the two weeks so far this year, the loonie has dropped 5.8% against the euro, 5.3% against the greenback, and 8.6% against the yen. “Even the likes of Norway (+5.4% against the CAD) and Sweden (+3.9%) are mocking the once-mighty Canadian dollar,” Marion wrote in the note. “Australia and New Zealand? Not to worry, they are also gaining ground against the CAD.”

The Canadian dollar plunged to a fresh 13-year low last week and hasn’t recovered since, hovering at US$0.688, below $0.70 for the first time since spring 2003.

People are getting alarmed. A lot of consumer goods are imported, including 81% of fruits and vegetables. The plunging loonie makes them more expensive for Canadians: meat prices rose 5% last year, fruits 9%, vegetables 10%. The average household ended up spending C$325 more for food in 2015 than in 2014, according to the Food Price Report. And it’s likely to get worse.

When Stephen Poloz became governor of the Bank of Canada in 2013, he set out to hammer down the Canadian dollar. In 2015, he redoubled his efforts. He relied on ceaseless jawboning. He even invoked the absurdity of negative interest rates. And he cut the overnight rate twice, the infamous surprise cut in January and the telegraphed cut in July, at a time when the Fed was flip-flopping about raising rates.

…click on the above link to read the rest of the article…

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

January 11, 2016

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

In late September, India “surprised” 51 out of 52 economists by cutting rates a larger than expected 50 bps.

Despite RBI Governor Raghuram Rajan’s penchant for catching markets off guard and despite the fact that exports had fallen for eight consecutive months, economists still failed to predict that anything more than 25 bps was in the cards.

“The weakness in India’s exports is striking, not only in terms of past trend, but also from a cross country perspective,” Deutsche Bank wrote at the time. “Indeed, India’s exports performance has been the weakest in the region in 2015.”

In short: in a world gone Keynesian crazy, you live and die by your willingness to engage in competitive easing and with China having just a month earlier moved to devalue the yuan, India had little choice but to cut lest the export picture should darken further.

Since then the malaise has deepened.

Exports have now fallen for 12 straight months and although some of the decline is probably attributable to slumping prices (as opposed to lower volumes), it’s worrisome nevertheless.

“India’s external trade likely fell for second consecutive year in FY16E, with both exports and imports contracting by 18.5%YoY and 17.2%YoY in the period Apr-Nov’15,” Citi notes, adding that “the meltdown in India’s exports and imports was even sharper than the global tradewhich contracted by 12- 13%YoY.”

On Friday, in the wake of China’s continued devaluation of the yuan, Indian Trade Minister Nirmala Sitharaman expressed concern about the effect a sharply weaker RMB will have on her country’s trade deficit with Beijing. “It’s worrying,” she said. “My deficit with China will widen.”

India is now looking at ways to prevent a flood of cheap imports from hitting domestic producers. “India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them,” Reuters writes. “A similar measure was adopted in 1999.”

…click on the above link to read the rest of the article…

Canadian dollar on track for 2nd-worst year ever

December 19, 2015

Canadian dollar on track for 2nd-worst year ever

Currency is down 17% year-to-date against the U.S. currency

The Canadian dollar hasn't been at par with the U.S. dollar for three years. This year, the loonie's slide against the American dollar was one of the biggest ever.

The Canadian dollar hasn’t been at par with the U.S. dollar for three years. This year, the loonie’s slide against the American dollar was one of the biggest ever. (Mark Blinch/Reuters)

Assuming that the loonie stays at current levels (and that may be a reckless assumption given the steady slide we’ve seen of late) our dollar is on track to record its second-worst year ever, according to calculations from BMO Capital Markets, with a drop of 17 per cent since the start of the year.

That would be second only to 2008’s drop of 18.6 per cent, when the financial crisis was gripping much of the industrialized world.

Economists at the National Bank of Canada put it this way in a currency outlook this month: “This year is one to forget for holders of the Canadian dollar.”

To put this slide into perspective, of course, it’s necessary to go back more than one year. Remember when the dollar was on par with its American counterpart? It wasn’t that long ago. The two currencies were at par as recently as December 2012.

Today, it costs at least $1.40 to buy a greenback that could be swapped one-for-one with our loonie three years ago.

Experts cite several main reasons for the slide since then:

Slumping oil prices. With oil plunging to around $35 US a barrel (it was around $60 US at the start of the year and more than $100 US in the middle of last year), the hit to our currency has been huge. Canada is a large exporter of oil, which is priced in U.S. dollars. Prices of gold, copper and coal, which Canada also exports in abundance, are also slumping.

…click on the above link to read the rest of the article…

Baltic Dry Crashes To New Record Low As China “Demand Is Collapsing”

December 16, 2015

Baltic Dry Crashes To New Record Low As China “Demand Is Collapsing”

Worst. Ever.

As Bloomberg adds, China, which makes about half the world’s steel, is on track for the biggest drop in output for more than two decades, according to data compiled by Bloomberg Intelligence…

Owners are reeling as China’s combined seaborne imports of iron ore and coal — commodities that helped fuel a manufacturing boom — record the first annual declines in at least a decade. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for rates, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

“It doesn’t help that Chinese steel production is about to see the most dramatic decline to the lowest in 20 years,” said Herman Hildan, a shipping-equity analyst at Clarksons Platou Securities in Oslo. “Demand growth is collapsing.”

* * *

Sounds like a perfect time to hike rates and exaggerate the deflationary tsunami and monetary outflows from the world’s potentially growing economies.

Despite a brief dead-cat-bounce late November, which Jim Cramer heralded as evidence of stabilization in China, the world’s best known freight index has collapsed to new all-time record lows this morning. Amid a persistent glut of ships and ongoing concerns about Chinese steel imports, The Baltic Dry has tumbled to 471 – the lowest level in at least 30 years.

The Fallacy that Weakening Your Currency Generates Prosperity

December 8, 2015

The Fallacy that Weakening Your Currency Generates Prosperity

Those demanding that the purchasing power of the currency be devalued are impoverishing everyone who holds the currency.

Of the many economic policies that are accepted as true yet are absolute nonsense, perhaps none is more achingly nonsensical than the notion that weakening a nation’s currency will magically make that nation prosperous.

Like the equally nonsensical Keynesian Cargo Cult’s misplaced obsession with “aggregate demand” driving “growth,” the idea that devaluing one’s money makes one more prosperous does not make even rudimentary sense.

If devaluing one’s currency generated prosperity, then those nations that have destroyed their currencies should be the most prosperous on Earth. The reality is those nations that devalue their currency are poor, for self-evident reasons: devaluing one’s currency lowers its purchasing power, which generates price inflation as imports soar in cost.

By lowering the yield on bonds (the favored method of devaluing one’s currency), the leadership inflates enormous credit/asset bubbles as everyone seeks to borrow nearly-free money to buy real-world assets that generate income streams. This fatally distorts the domestic economy and creates the potential for crisis in the foreign exchange (FX) market.

The obsession with devaluing one’s currency is rooted in the idea that exports are the key to growth, and the only way to boost exports in a world awash in virtually everything is to beggar thy neighbor by lowering the cost of one’s exports in other currencies by devaluing your own currency more than competitors are devaluing their currencies.

The problem with this idea is that the cost to the entire economy exceeds the modest gains in exports generated by beggar thy neighbor devaluation. In most economies, exports are a modest sector of the overall economy. In the U.S., exports are around 13.5% of the economy: $2.35 trillion in a $17.4 trillion economy.

…click on the above link to read the rest of the article…

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

November 10, 2015

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived. Never before in history has global trade collapsed this dramatically outside of a major worldwide recession. And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world. So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting. A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628. However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China. China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling. In October, Chinese exports were down 6.9 percent compared to a year ago. That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse. Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September. China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing. As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

…click on the above link to read the rest of the article…

18 Numbers That Scream That A Crippling Global Recession Has Arrived

November 3, 2015

18 Numbers That Scream That A Crippling Global Recession Has Arrived

The stock market has been soaring, but all of the hard economic numbers are telling us that a major global recession is here. This is so reminiscent of what happened back in 2008. Back then, all of the fundamentals were screaming “recession” by the middle of that year, but the equity markets didn’t respond until later. It appears that a similar pattern is playing out right now. The trade numbers, the manufacturing numbers, the inventory numbers and even the GDP numbers are all saying that a very significant economic slowdown is happening, but stock traders haven’t gotten the memo yet. In fact, stocks had an absolutely great month in October. Of course just like in 2008, stocks will eventually catch up with reality. It is just a matter of time. The following are 18 numbers that scream that a crippling global recession has arrived…

#1 According to the biggest bank in the western world, British banking giant HSBC, the world is already in a “dollar recession“. Global GDP expressed in U.S. dollars is down 3.4 percent so far in 2015, and total global trade has fallen 8.4 percent.

#2 In September, Chinese exports were down 3.7 percent compared to one year ago, and Chinese imports were down a whopping 20.4 percent compared to a year ago.

#3 Demand for Chinese steel is down 8.9 percent compared to a year ago.

#4 China’s rail freight volume is down 10.1 percent compared to last year.

#5 In October, South Korean exports were down 15.8 percent from a year ago.

#6 According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114. What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

…click on the above link to read the rest of the article…

China’s Economy Even Worse than Suspected?

October 31, 2015

China’s Economy Even Worse than Suspected?

It’s always good to have a plan. So China has a new five-year plan, its 13th. And the plan is to dial down China’s formerly white-hot economy to a target of “medium-high economic growth” for the five years starting in 2016.

“The country will promote greater sophistication in its industrial sector and significantly raise the contribution of consumption to economic growth,” according to the Global Times, a tabloid under the People’s Daily, which is the official propaganda organ of the Communist Party. The goal is to double 2010 GDP and per-capita income by 2020 and create “a moderately prosperous society.”

That’s all exciting stuff for the future. Meanwhile, there’s today.

And today, the Chinese economy isn’t exactly hopping, despite the official GDP growth rate of 6.9% that no one believes, especially not the Chinese leadership. So the People’s Bank of China cut its benchmark interest rates a week ago – the sixth cut since November – to the lowest level in the data going back two decades.

The leadership is trying to reform and restructure the economy away from low-value cheap-labor manufacturing to the miraculous powers of consumerism, implemented decades ago with such glorious success in the US and elsewhere. So exports and imports have been plunging. But no big deal because retail and services are going to make up for it. Other problems are cropping up….

“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu Jimin, deputy head of the China Iron & Steel Association, explained on Wednesday, according to Bloomberg. Demand for steel, which is used in everything from buildings to cars, has dropped by 8.7% in September from a year ago. Prices have crashed. And steel mills are buckling under their debts even as they’re producing tons of red ink in an ocean of overcapacity.

…click on the above link to read the rest of the article…

Everything’s Deflating And Nobody Seems To Notice

October 22, 2015

Everything’s Deflating And Nobody Seems To Notice

Whenever we at the Automatic Earth explain, as we must have done at least a hundred times in our existence, that, and why, we refuse to define inflation and deflation as rising or falling prices (only), we always get a lot of comments and reactions implying that people either don’t understand why, or they think it’s silly to use a definition that nobody else seems to use.

-More or less- recent events, though, show us once more why we’re right to insist on inflation being defined in terms of the interaction of money-plus-credit supply with money velocity (aka spending). We’re right because the price rises/falls we see today are but a delayed, lagging, consequence of what deflation truly is, they are not deflation itself. Deflation itself has long begun, but because of confusing -if not conflicting- definitions, hardly a soul recognizes it for what it is.

Moreover, the role the money supply plays in that interaction gets smaller, fast, as debt, in the guise of overindebtedness, forces various players in the global economy, from consumers to companies to governments, to cut down on spending, and heavily. We are as we speak witnessing a momentous debt deleveraging, or debt deflation, in real time, even if prices don’t yet reflect that. Consumer prices truly are but lagging indicators.

The overarching problem with all this is that if you look just at -consumer- price movements to define inflation or deflation, you will find it impossible to understand what goes on. First, if you wait until prices fall to recognize deflation, you will tend to ignore the deflationary moves that are already underway but have not yet caused prices to drop. Second, when prices finally start falling, you will have missed out on the reason why they do, because that reason has started to build way before a price fall.

…click on the above link to read the rest of the article…

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

October 20, 2015

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

When the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down. It is just basic economics. Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge. Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now. But this is just part of a larger trend. As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent. The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.

For many years, China has been leading the revolution in global trade. But now we are witnessing something that is almost unprecedented. Chinese exports are falling, and Chinese imports are absolutely imploding…

Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’ Alpha Nowputs it. Most of these exports are manufactured goods that are shipped by container to the rest of the world.

And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.

…click on the above link to read the rest of the article…

The Latest Evidence That Global Trade Has Collapsed: India’s Exports/Imports Plunge By 25%

October 16, 2015

The Latest Evidence That Global Trade Has Collapsed: India’s Exports/Imports Plunge By 25%

Late last month, India surprised 51 out of 52 economists when the RBI cut rates by 50bps.

Although economists have a reputation for being terrible when it comes to making predictions (getting it wrong perpetually is almost a job requirement), it’s difficult to understand how 51 of them failed to see a cut of that magnitude in the cards.

After all, it was just a little over a month earlier when the Indian government’s chief economic advisor Arvind Subramanian told ET Now television that India may need to “respond” to China’s monetary policy stance. He also hinted at further export weakness to come.

Here’s what the REER picture and the export picture looked like going into the RBI meeting:

And here’s what Deutsche Bank had to say in August:

Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. Global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction.

Hence the outsized rate cut.

So that’s what the picture looked like going into Thursday’s export data and unsurprisingly, the numbers definitively show that global trade is in freefall. Here’s Reuters:

India’s exports of goods shrank by nearly a quarter in September from a year ago, falling for a 10th straight month and threatening Prime Minister Narendra Modi’s goal of boosting economic growth through manufacturing.

India’s economy, Asia’s third largest, is mostly driven by domestic demand, but the country has still felt the effects of China’s slowdown. Exports have dropped and consumer and industrial demand for imports has weakened.

Imports fell 25.42 percent in September from a year earlier to $32.32 billion.Exports stood at $21.84 billion, according to data released by the Ministry of Commerce and Industry on Thursday.

…click on the above link to read the rest of the article…

Overcapacity “will be even greater than in 2009.”

October 10, 2015

Overcapacity “will be even greater than in 2009.”

“I would be open to the possibility” of reducing the fed funds rate “even further” and go negative, explained Minneapolis Fed President Narayana Kocherlakota on Thursday. Some folks just don’t get it.

Here are the results of seven years of global QE and zero-interest-rate policies:

Global demand is going from sluggish to even more sluggish. Emerging market countries are leading the way, it is said, and China is sneezing. Brazil and Russia have caught pneumonia. Japan is feeling the hangover from Abenomics. Even if there is some growth in Europe, it’s small. And the US, “cleanest dirty shirt” as it’s now called, is getting bogged down.

And here’s what this is doing to the shipping industry, the thermometer of global economic growth.

On one side: lack of demand.

Due to the “recent slowdown in world trade” shipping consultancy Drewry on Thursday slashed its forecast for container shipping growth, in terms of volume, to 2.2% for 2015 and lowered its estimates for future years. BIMCO, the largest international shipping association representing shipowners, issued its own, even gloomier report also on Thursday:

On the US West Coast, it’s been slow all year, starting with the labor disputes that weren’t resolved until mid-March. Since then, year-on-year growth in the second quarter was almost on par with 2014. But for the first half year alone, inbound loaded volumes dropped by 2% according to BIMCO data.

On the Asia to Europe trades, volumes were down by 4.2% in the first half of the year as 7.4 million TEU (Twenty-foot container Equivalent Units) was transported. Northern European imports fell by 3.6%, while the East Med and Black Sea imports fell by 4.8%.

Intra-Asia shipments remain a stronghold with ongoing positive growth around 4-5%, but the increased uncertainty surrounding the economic development in China adds doubt as to whether such a strong growth rate can be sustained for the full year.

…click on the above link to read the rest of the article…

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