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Weekly Commentary: “Periphery to Core Crisis Dynamics”

August 4, 2018

Weekly Commentary: “Periphery to Core Crisis Dynamics”

The renminbi traded at 6.8935 in early-Friday trading, with intensified selling pushing the Chinese currency to its lowest level (vs. the $) since May 26, 2017. The People’s Bank of China (PBOC) was compelled to support their currency, imposing a 20% reserve requirement on foreign-exchange forward contracts (raising the cost of shorting the renminbi). The PBOC previously adopted this measure back during 2015 tumult, before removing it this past September.
The re-imposition of currency trading reserve requirements indicates heightened concern in Beijing. Officials likely viewed modest devaluation as a constructive counter to U.S. trade pressures. In no way, however, do they want to face disorderly trading and the risk of a full-fledged currency crisis.

The renminbi rallied 1% on the PBOC move, ending slightly positive for the day (but down for the eighth straight week). Trading strongly prior to the PBOC move, the dollar index reversed into negative territory. Many EM currencies moved sharply on the renminbi rally. The South African rand reversed course and posted a 1.2% gain. The Brazilian real also jumped 1%. Curiously, the Japanese yen gained about 0.5%.

Overnight S&P500 futures, having traded slightly negative, popped higher on the renminbi rally. But EM equities were the bigger beneficiary. Brazil Ibovespa index gained 2.3% Friday. It increasingly appears the fortunes of the renminbi and EM markets are tightly intertwined.

The unfolding trade war is turning more serious. Beyond Friday’s currency move, China’s Finance Ministry – in measures to “guard its interests” – announced plans for significantly broader retaliation tariffs on U.S. goods.

August 3 – CNBC (Michael Sheetz): “China is preparing to retaliate in the escalating trade war with tariffs on about $60 billion worth of U.S. goods. The import taxes would range in rates from 5% to 25%, China’s Ministry of Commerce said…
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The Core

March 30, 2018

The Core


Jerome Liebling May Day Union Square Park New York City 1948
Dr. D. peels the American political onion to get down to what it’s all about. I’m impressed. He explains America better than just about anyone. Turns out, there ain’t much left. So yeah, what happened?

Dr. D: The news cycle runs so frenetically it’s easy to lose track of the bigger tide. Let’s go back a week and look at something the Automatic Earth has been talking about since the beginning.

This weekend at a speech in Mumbai, Hillary Clinton said:

“If you look at the map of the United States, there’s all that red in the middle where Trump won. …I win the coast….I won the places that represent two-thirds of America’s gross domestic product. So I won the places that are optimistic, diverse, dynamic, moving forward. And his whole campaign, ‘Make America Great Again,’ was looking backwards.”

There are many ways to look at this: for one thing, by number, over 90% of the counties are Red. Yet over 50% of the population is concentrated in the cities and Blue counties. Clinton officially won the popular vote. Yet the United States has always had a geographical Electoral College system. A compromise of representation between small, weak states and strong, large states, and the rules of the 2016 campaign were no mystery or surprise. Yet that’s only the middle-sized picture.

The Big Picture is Mrs. Clinton saying she’s representing the important people, the right people – even the working people – and that 2/3rds of those people live exclusively in Blue districts on both coasts. While this is arguably true, it wasn’t always true. NYC or San Francisco have always been important, but from their founding until now, places like Dayton, St. Paul, Pittsburgh, or New Orleans were considered vital, important places, places where their own specialty happened: tires or flour, steel or shipping, lumber or mining.

What Happened? In a way the election was a referendum on “What Happened?” What happened to my community, my country, my area, and all the vital work those long-abandoned areas used to do, what happened to the massive GDP those areas used to contribute, and the answer is simple:

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

Weekly Commentary: Cracks at the Core of the Core

January 17, 2016

Weekly Commentary: Cracks at the Core of the Core

January 15 – Bloomberg (Matthew Boesler): “The U.S. economy should continue to grow faster than its potential this year, supporting further interest-rate increases by the Federal Reserve, New York Fed President William C. Dudley said. ‘In terms of the economic outlook, the situation does not appear to have changed much” since the Fed’s Dec. 15-16 meeting, Dudley said, in remarks prepared for a speech Friday… He added that he continues ‘to expect that the economy will expand at a pace slightly above its long-term trend in 2016,’ and said future rate increases would depend on incoming economic data.”

January 15 – Reuters (Ann Saphir): “The stock market’s swoon does not change the economic outlook and is merely market participants trying to make sense of global developments, San Francisco Federal Reserve Bank President John Williams told reporters… ‘As the Fed is moving gradually through a process of normalization it’s not surprising that we are not going to be at the peak stock prices’ of last year, Williams said. So far swings in stock market prices have not fundamentally changed his expectation for moderate economic growth, he said.”

The world has changed significantly – perhaps profoundly – over recent weeks. The Shanghai Composite has dropped 17.4% over the past month (Shenzhen down 21%). Hong Kong’s Hang Seng Index was down 8.2% over the past month, with Hang Seng Financials sinking 11.9%. WTI crude is down 26% since December 15th. Over this period, the GSCI Commodities Index sank 12.2%. The Mexican peso has declined almost 7% in a month, the Russian ruble 10% and the South African rand 12%. A Friday headline from the Financial Times: “Emerging market stocks retreat to lowest since 09.”

Trouble at the “Periphery” has definitely taken a troubling turn for the worse. Hope that things were on an uptrend has confronted the reality that things are rapidly getting much worse.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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