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“The Real Economic Shock Is Yet To Come” – Trade War Deepens Across Asia 

November 3, 2018

“The Real Economic Shock Is Yet To Come” – Trade War Deepens Across Asia 

The last chance to avoid a full-blown 2019 trade war may come later this month when President Trump is scheduled to meet with Chinese President Xi Jinping at the G-20 Buenos Aires summit in the city of Buenos Aires, Argentina. It will be the first-ever G-20 summit to be hosted in South America and could be one of the most significant meetings in quite some time — as both leaders will try to resolve trade disputes.

Right now, the economic impact of the escalating trade war between Washington and Beijing seemed to deepen last month as factory activity and export orders dove across Asia, with some analyst warning Reuters that the worst has yet to come.

New data earlier this week showed exporters and factories came under severe pressure, as manufacturing surveys showed some growth in China, but a rapid slowdown in South Korea and Indonesia and a straight out contraction in activity in Malaysia and Taiwan.

Those data points followed weak industrial production numbers from Japan and South Korea on Wednesday.

Much anxiety was seen by computer and human traders on Thursday, as U.S. Treasury bonds fell after data suggested a slowdown has now washed ashore into U.S. manufacturing, construction, and productivity.

The Institute for Supply Management (ISM) said its index of national factory activity declined to a six-month low of 57.7 points last month from 59.8 in September. A reading above 50 indicates growth in manufacturing, which accounts for about 12% of the U.S. economy.

“You have a tightening of monetary conditions around the world, a slowdown in Chinese demand, and financial market turmoil that affects sentiment and investment decisions,” said Aidan Yao, senior Asia EM economist at AXA Investment Managers.

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

Synchronized Global Growth is Ending: Shocks Come Next

March 12, 2018

Economic pleasant surprises are in the past, as is the buildup of the balance sheet. The future is deleveraging.

Alarm bells are ringing. No one cares. By now, everyone knows stock only go up.

For those in tune with other ideas, Financial Times writer Stephen King suggests the Global Economy is Due for a Downswing.

Jim Bianco at Bianco Research comments on synchronized growth in his report Concerted Economic Growth is in Jeopardy of Ending.

Summary

Less than 50% of the world’s economies are now producing economic data surprises. Realized economic data following suit in the months to come would remove the tailwind of ‘concerted economic growth’ for risk assets and central banks. Emerging markets may be first on the list to experience higher volatility.

Comment

We have all been discussing ‘concerted global economic growth’ since early 2017 as a tailwind to risk assets and central bank policies. The chart below shows the percentage of the world’s economies producing economic data surprises (orange line) and above-average data changes (blue line) since 2004.

Over 90% of economies were indeed posting realized data changes at above-average growth rates in mid-2017. However, reported data has slowed its ascent over the past month led by the Eurozone and Canada. The percentage of economies with upside surprises has fallen to 44%, which has been a leading indicator for actual data changes like payrolls, industrial production, and durable goods orders. Above-average data changes have also rolled over to 67%. A break below 50% would mean ‘concerted economic growth’ should no longer be proclaimed.

Economic Misses

The next chart offers the median returns by major asset classes after the percentage of economies growing above-average falls below 60%. The impact is not immediate, but higher volatility and drawdowns do ensue over the following months.

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

Can the UK Survive Brexit?

January 5, 2016

Can the UK Survive Brexit?

LONDON – The upcoming referendum on the United Kingdom’s continued membership in the European Union, almost certain to be held this year, could turn out to be yet another major catastrophe to hit Europe. If, as seems increasingly plausible, British voters chose to leave, the result would be a profoundly destabilized EU – and a shattered UK.

The problem is that, with the EU seemingly mired in perpetual crisis, the case for “Brexit” carries significant intellectual and emotional allure. Even before the eurozone’s debt problems emerged in 2009-2010, it seemed clear to many British that, in order to be resilient to shocks, a currency union requires greater integration, in particular, some form of fiscal union. In other words, Europe would need to act more like a nation-state. And that is one arrangement that the UK has never been willing to abide.

And, on an emotional level, fear of large-scale immigration, from both within and outside the EU, has fueled a populist backlash, which the recent refugee crisis has intensified. The populist response relies on the bizarre but evidently resonant argument that Europe – or, more specifically, Germany – is encouraging the refugee inflows.

Meanwhile, the defenders of Britain’s continued EU membership have made one mistake after another. Many have apparently pinned their hopes on the unrealistic expectation that they could renegotiate the EU treaties. In particular, they tried to present a case for weakening crucial elements of the European integration process, especially with regard to labor mobility.

Furthermore, the pro-EU camp has sounded the alarms over the economic shock that Brexit would cause. This may have seemed like a reasonable strategy, but fear is not rational; it may well drive voters toward the apparent certainties offered by the nation-state.

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

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