Some more sentences about China, this time from BNP Paribas’ Richard Iley:
It has been a near unshakeable axiom that China’s economy is on a pre-determined flight path to overtake the US and quite quickly become the world’s biggest economy. But China’s rapid nominal compression combined with the end of RMB appreciation vs. the USD and the solid c.4% nominal GDP growth in the US economy mean that, for the first time in a decade, China’s catch up with the US has stalled. Q1 GDP data is not yet available for the US economy but, assuming a cautious 2.5% annualised increase, helpful base effects would still leave nominal GDP at c.4.5% y/y. The US has therefore almost certainly grown faster than China’s in USD terms over the last year for the first time in well over a decade (Chart 5 & 6).
Presenting, the latest US TIC flows as put together by Gennadiy Goldberg at TD Securities:
It seems odd — and it may well be short-lived — but the US is beginning to shape up as a rare bright spot in the world economy.* Or indeed almost the only bright spot in the world’s economy, except for the Gulf petro-states. That is, if you were to base such an assessment solely on Japan’s September export data, released on Monday.
Japan’s preliminary September trade data tell a story not dissimilar to China’s — exports to Europe are slowing (unsurprisingly) by a lot, down 26 per cent for the month, year-on-year. Read more
From Steven Englander at Citi — a little observed factoid regarding employment trends among the older demographic:
We are taking one small slice at this subject, starting with the little noticed fact that employment to population ratios among older individuals have gone up in recent years, in contrast to the so-called prime-aged 25-54 cohort, where employment to population is much lower than earlier. Figure 1 shows the percentage point change in the employment to population for the three age groups since 2007. Read more
To what extent has Japan’s soft growth over the past 20 years been due to its population ageing? And to what extent unfavourable demographics can be offset by increases in labour market participation (especially by old people) and/or labour productivity gains?
Citi’s Nathan Sheets and Robert Sockin have put together a very useful comparison of (mostly supply-side) measures for the US, Japan and eurozone that examine these questions. They’ve “decomposed” real GDP-per capita down into labour productivity, employment rate, labour force participation, and the share of the working-age population. Read more
US equity markets are nearly as excited about Black Friday as these shoppers:
US equities could be in line for a secular bull market as soon as next year, but European stocks should be handled with care.
That is a synopsis of the latest thinking from Citi. For more details read on: Read more
Eat your words Senator Tom Harkin.
“Quite frankly, I bet nobody would even feel it,” the Iowa Democrat said on Tuesday in relation to his plan to introduce a US financial transaction tax. Read more
Something to take G20 Cannes delegates’ minds off Greece…
How’s this for evidence that the emerging markets growth story is overblown? Of all the G20 countries, the US would have given you the greatest equity returns over the past year, not Brazil or China. Read more
Goldman Sachs welcomes you to the modern world.
The US bank has put out a primer on “‘unconventional’ unconventional policies” to guide us through the maze of recent central bank moves from ‘operation twist’ to UK QE2 and the imposition of a minimum rate for the EUR/CHF exchange rate by the Swiss National Bank. Read more
The US government is attempting to level the playing field between private firms and state-owned enterprises as it seeks to negotiation need trade deals, reports the WSJ. Officials are currently in Peru for discussions to create a free-trade pact dubbed the “Trans-Pacific Partnership” which would include the US, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. After a US congressional panel, the China Economic and Security Review Commission, reported that 50 per cent of China’s GDP is generated by state-owned entities in the country that benefit from various subsidies, officials have moved to link fair competition requirements into new trade deals. State-sponsored firms, when bidding for new business, would be required to act on a commercial basis. There are also proposed limits for subsides. An outline of the Trans-Pacific Partnership is expected to be unveiled at the leaders summit of the Asia-Pacific Economic Cooperation forum on November 12th.
So much for emerging markets propelling the world economy out of its current malaise.
Forget China’s healthy manufacturing data; the debt crisis in the Eurozone, deleveraging in the US and sluggish economic growth across the developed world will restrain EM economic activity for the rest of this year and into 2012. Read more
The US has accused Iran of backing a plot to assassinate the Saudi Arabian ambassador to the US, detailing an alleged conspiracy that could spark a new confrontation between Washington and Tehran, reports the FT. The plot was part of a $1.5m “international murder-for-hire scheme” directly linked to the Islamic Revolutionary Guard Corps, Iran’s elite military force, said Eric Holder, attorney-general. The scheme was “conceived, was sponsored and was directed from Iran, and constitutes a flagrant violation of US and international law, including a convention that explicitly protects diplomats from being harmed”, Mr Holder told a news conference on Tuesday.
The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates, reports the FT. Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing.
A simple rule meant to cut paperwork for US companies has grown into one of the biggest multinational tax breaks around, an FT/ProPublica report says. The rule is known as “check-the-box.” It allows US companies to shift profits from operations in high-tax countries simply by marking an Internal Revenue Service form that transforms subsidiaries into what the agency calls a “disregarded entity”. It costs the US and other countries billions of dollars in lost taxes a year and thrives thanks to determined business support, including a campaign two years ago that forced the Obama administration to retreat from altering it, and tax professionals worldwide who exploit its benefits. Also in the FT, Coca-Cola chief executive Muhtar Kent has criticised US tax rules, saying China is now a more friendly place to do business. Meanwhile international policymakers are exploring the need to crackdown on global tax arbitrage, the FT reports, with experts at the OECD examining how successful past efforts have been.
The US government fell into line with private forecasters and cut its outlook for the domestic corn crop after a summer hot spell crimped yields, the FT reports. This year’s harvest in the world’s largest corn producer and exporter will total 12.5bn bushels, the US Department of Agriculture said on Monday, down 417m bushels, or 3.2 per cent, from an estimate last month. The agency said the average corn field would produce 148.1 bushels per acre, 4.9 bushels less than its previous estimate. The crop would still be the third largest in US history. But with consumers from hog farms to ethanol producers driving record global demand, stocks are expected to fall to extremely low levels by next summer. “The corn market continues to remain incredibly tight,” said Chad Hart, an economist at Iowa State university. “Typically, when corn’s tight, all the other grains feel it.” The government’s reappraisal of corn prospects slightly undershot private estimates. CBOT December corn rose 1.2 per cent to $7.45½ a bushel, after rising 60 per cent in the past year. CBOT December wheat declined 0.3 per cent to $7.27¼ a bushel, while CBOT November soyabeans slumped 2.2 per cent to $13.96 a bushel.
There’s something to reading Ben Bernanke’s speeches from a passive communication point of view. It’s not so much what he says, but what he doesn’t say. Or rather what he infers by saying something else.
For example take the following concept: Read more
Barack Obama sought to resuscitate his flagging presidency and the US economy with a larger-than-expected $450bn jobs plan that emphasises tax cuts in a bid to win over Republican opposition, the F reports. In a sign of the White House’s own bleak assessment of the recovery, the proposal, which was presented in an address by the US president to Congress, is more than half the size of the stimulus package enacted by Mr Obama shortly after he took office in the depths of the financial crisis of 2009. “It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services,” Mr Obama said. If enacted, the plan would reduce tax paid by workers to fund the national retirement scheme to 3.1 per cent in 2012 from the 4.2 per cent level temporarily introduced this year.
Fitch, the Good to Moody’s Bad and S&P’s Ugly, on Tuesday morning reaffirmed its AAA rating on US sovereign debt and maintained a stable outlook. This is unsurprising: it said as much following the conclusion of the debt ceiling negotiations.
A quick read of the rationale (pasted below) highlights the differences in how Fitch sees the US fiscal picture. (It’s more William Hart than James Whistler.) Compared to S&P, it places more faith in Congress, current growth assumptions, and the special place of US currency and debt in global capital markets. Read more
An important question given struggling financial stocks, a stalling US economy, US public sector cuts and concerns over the impotence of QE3. Take your pick, really.
Fortunately it was also a question tackled Friday morning in a special conference call hosted by Nomura’s US banking analyst Brian Foran, Japan banking analyst Ken Takamiya, and Richard Koo from the Nomura Research Institute. Read more
The 30-year US Treasury bond auction spooked the market on Wednesday, seeing yields fall massively on the long bond, because the yield achieved was 3.75 per cent versus a yield of 4.375 per cent in May.
But…. Read more
At least six more Swiss and one Liechtenstein private bank have attracted the attention of US prosecutors investigating whether Swiss bankers helped rich Americans evade tax, the FT reports. The revelations, contained in the latest court documents, show how inquiries by the US authorities that started with UBS in 2007 have mushroomed to include a swathe of the country’s financial sector. No additional bank has been named. However, US investigators generally began by prosecutions of taxpayers with undeclared Swiss accounts, then indicted Swiss bankers and specialist advisers, followed by investigations into specific banks. The latest information stems from indictments of a Zurich accountant allegedly specialising in forming sham offshore companies and foundations, and two former UBS bankers who left after the latter’s decision to close its US business in 2008.
It happened. After quite incredible reports of miscalculations, it happened. The thing that is perversely both meaningless and full of meaning was announced on Friday evening New York time. The United States of America is now rated AA+ with negative outlook by Standard & Poor’s.
Overview from the release below, or click through the image below to read the entire rationale: Read more
Updated (8:21pm, New York time): The US treasury gained a stay of execution but not for very long, it turned out.
_____ Read more
Moody’s has raised Fitch’s earlier announcement by assigning a negative outlook to the US’s AAA rating. On July 13, the rating agency placed the US on review for a potential downgrade.
It’s increasingly looking like the US will be subject to a mild form of split rating: good (Fitch, AAA), bad (Moody’s, AAA with negative outlook) and ugly (S&P, AA?). Statement below, with our emphasis. Read more
On Tuesday afternoon Fitch reaffirmed its commitment to the US’s AAA rating.
The statement from the rating agency, which has been less critical of the US fiscal trajectory than Moody’s and S&P, describes the US’s debt ceiling deal as “commensurate with its ‘AAA’ rating”. Its timing was Chopinesque — at pixel time the President was set to sign the Budget Control Act, following the Senate’s Tuesday 74 to 26 vote in favour of the deal. Read more
The Budget Control Act will reduce annual US federal deficits by at least $2,100bn by 2021, according to the CBO. But will it?
Analysis published Tuesday by Barclays Capital argues that it won’t. This is due to the overly optimistic growth assumptions underpinning the CBO’s new deficit projections. Douglas Elmendorf, the CBO director, writes on the CBO blog that its analysis was performed relative to CBO’s March 2011 baseline. Read more
The United States and North Korea on Thursday began discussions on whether to reopen talks on the latter’s nuclear weapon programme. Two years after the countries’ last diplomatic exchange, the US special envoy for North Korea, Stephen Bosworth, met North Korean negotiator vice foreign minister Kim Kye-gwan in New York. “We’re quite clear, broadly, on what we’re looking for, which is for North Korea to live up to its commitments … it needs to take concrete steps toward denuclearization,” Mark Toner, State department spokesperson, told Reuters.