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Deutsche Bank’s Dire Warning On Global Trade: “The Currency War Is Futile”
Deutsche Bank’s Dire Warning On Global Trade: “The Currency War Is Futile”
“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”
That’s from WTO chief economist Robert Koopman, and it’s a quote we’ve used on a number of occasions. Koopman is referring to the fact that for several years in a row, the rate of growth in global trade has lagged GDP growth. That’s a problem for two reasons: 1) GDP growth is hardly robust as it is, and 2) before the recent downturn, the last time trade growth underperformed the rate of economic expansion was two decades ago.
As WSJ noted last autumn, trade growth has averaged just 3% per year. That’s half of the 1983-2008 average.
“It’s fairly obvious that we reached peak trade in 2007,” Scott Miller, trade expert at the Center for Strategic and International Studies, a Washington, D.C., think tank told the Journal.
Since then, the evidence has continued to pile up that global trade has flatlined. Freight volume in the US fell for the first time in three years in November, while monumental declines for Class 8 truck sales vividly demonstrate the extent to which commerce is simply grinding to a halt across the US economy. As for global trade, well, the Baltic Dry speaks for itself.
“It is worse than in 2008. The oil price [is low] and freight rates are lower. The external conditions are much worse,” Maersk CEO Nils Andersen said, just last month. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter alone.
In this environment the “answer” has been competitive devaluation – i.e. a currency war.
…click on the above link to read the rest of the article…
World Trade Collapses Most Since Crisis
World Trade Collapses Most Since Crisis
That is, have lackluster growth and trade become structural and endemic rather than transient and cyclical?
Those are the burning questions that keep central bankers (not to mention sellside economists) up at night and they are front and center at the G-20 in Shanghai.
Warning signs abound. The Baltic Dry is in a veritable free fall. Germany’s manufacturing juggernaut is showing signs of faltering. The BRICS have ceased to be a reliable driver of global growth. US freight volumes are falling for the first time in years. And the list goes on.
“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” WTO chief economist Robert Koopman said last autumn. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”
As we noted earlier this month, to the extent Maersk is a bellwether, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.
On Thursday we got the latest evidence that the wheels are falling off. According to new data from the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor, global trade (defined as the value of goods that crossed international borders) plunged nearly 14% in 2015.
That’s the first contraction since 2009.
“The new data released on Thursday represent the first snapshot of global trade for 2015,” FT notes. “But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected.”
…click on the above link to read the rest of the article…
World’s Biggest Containership “Hard Aground” As Baltic Dry Crashes Below 300 For First Time Ever
World’s Biggest Containership “Hard Aground” As Baltic Dry Crashes Below 300 For First Time Ever
Commodities obviously are saying something very different from “the market”…
And as Dana Lyons notes, of course much of the input into the BDI comes from the price of raw materials. Considering the deflationary spiral in commodities, the drop in the BDI to all-time lows shouldn’t be a shock.
However, the depths that the index is now plumbing is quite alarming and suggests trouble in the global trade picture.It would also suggest perhaps that the deflationary pressure is not just a supply issue. Consider every prior drop in the Baltic Dry Index down to the 500-600 level. Each time, the index immediately jumped as if latent demand was just waiting for those lower prices. That development has not yet occurred this time around, even as prices are reaching 45% below the previous record low.
The Baltic Dry Index has become a trendy thing to mention in recent years when discussing global market and economic conditions. The truth is, nobody really ever knows for sure what the broader message is behind the index’s behavior.That said, this recent plunge is making it quite difficult to conceive that it means anything positive in terms of the global economy and deflationary pressures.
And finally it’s not just commodities and the Baltic Dry that stalled, as gCaptain reports, one of the world’s biggest containerships is hard aground in Germany’s Elbe River leading to the port of Hamburg.
…click on the above link to read the rest of the article…
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
“Zombie Ships” – Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
It looks bad…
And it’s not just over-supply… (trade is slowing rapidly)…World trade volume rose by only 0.5% YoY in October and was up 2.4% YoY in the first 10 months of 2015, while world trade value in USdollar terms declined by 12.2% YoY in October and was down 11.8% YoY in the first 10 months of 2015.
But, as gCaptain details, reality is even worse for the world’s shipping industry:
Analysts agree there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.
However, unlike that bleak period for shipping, which ultimately resulted in a strong recovery for charter rates, this time the fundamentals are quite different.
Overcapacity, stemming from the ordering strategy of carriers has been exacerbated by a growth slowdown in China and ultra-low oil prices. And according to the latest report from Alphaliner, with the possible exception of very small feeders, all containership sectors are struggling badly, with owners obliged to accept sub-economic charter rates and pay for positioning costs just to keep their ships busy.
The revenue earned in charter hire is seen by owners as a “contribution” to vessel overheads, but is often insufficient to cover mortgage payments on the ship.
Thus “zombie ships”, as they have become known in shipbroking circles, are masking the perilous state of container shipping.
…click on the above link to read the rest of the article…
Why the Black Hole of Deflation Is Swallowing the Entire World … Even After Central Banks Have Pumped Trillions Into the Economy
Why the Black Hole of Deflation Is Swallowing the Entire World … Even After Central Banks Have Pumped Trillions Into the Economy
Many high-powered people and institutions say that deflation is threatening much of the world’s economy …
China may export deflation to the rest of the world.
Japan is mired in deflation.
Economists are afraid that deflation will hit Hong Kong.
The Telegraph reported last week:
RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.***
Andrew Roberts, the bank’s research chief for European economics and rates, said that global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings.
The Independent notes:
Lower oil prices could push leading economies into deflation. Just look at the latest inflation rates – calculated before oil fell below $30 a barrel. In the UK and France, inflation is running at an almost invisible 0.2 per cent per annum; Germany is at 0.3 per cent and the US at 0.5 per cent.Almost certainly these annual rates will soon fall below zero and so, at the very least, we shall be experiencing ‘technical’ deflation. Technical deflation is a short period of gently falling prices that does no harm. The real thing works like a doomsday machine and engenders a downward spiral that is difficult to stop and brings about a 1930s style slump.
Referring to the risk of deflation, two American central bankers indicated their worries last week. James Bullard, the head of the St Louis Federal Reserve, said falling inflation expectations were “worrisome”, while Charles Evans of the Chicago Fed, said the situation was “troubling”.
Deflation will likely nail Europe:
…click on the above link to read the rest of the article…
Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy
Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy
Today, none other than railroad titan Canadian Pacific (whose stock is down 4% despite the torrid surge higher in risk assets) confirmed that not only are things “worse”, but the bottom may have fallen out from what until recently was one of Warren Buffett’s favorite industries, after missing on both the top and bottom line, but especially during its conference call in which CEO Hunter Harrison admitted that he see “tremendous pressure” on the top line, and expects “challenging times” for revenue growth.
Then COO Keith Creel said that he expected volume in 2016 to be notably down from 2015, warns of strong headwinds for the US economy in the first half of 2016 and says CP is storing at least 600 locomotives in anticipation of better times.
Then the CFO also warned that compensation and benefit costs would be lower in the coming year.
Finally, the CEO warned that in addition to the already cut 7,000 jobs another 1,000 workers are about to “potentially” get pink slips.
Finally, and most ominously, CP warned that it sees delay in the Norfolk Southern deal timeline, and may change its strategy regarding the Norfolk Southern transaction.
We conclude with the warning issued by Bank of America one week ago:
…click on the above link to read the rest of the article…
Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down
Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down
Over the past year we have regularly contended that a far greater threat to the global economy than either corporate earnings, currency devaluations, rate cuts (or hikes), reserve outflow, or even the stock market, is the sudden, global trade crunch which has been deteriorating rapidly since late 2014 and has seen an even more dramatic drop off as 2015 is winding down. Actually, that is incorrect: global trade is merely a manifestation of the true state of the above listed items.
First, there was ships.
Back in March, we reported that “Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman.”
Then in August when we first pointed out a dramatic slowdown in the Baltic Dry index which had peaked just a few weeks earlier and we said that “should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.”
Three weeks later, we we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.The collapse in rates is nothing short of a bloodbath: “it was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago.
…click on the above link to read the rest of the article…
