The US motor industry resistance has begun, with General Motors leading the charge. A senior GM executive has defended the company’s use of Mexican plants, indicating it will not yield to political pressure to relocate manufacturing jobs to the US.
Until relatively recently, academics and Western policymakers overwhelmingly supported the official position of the European Union. Nowadays we live in a world where the head of the International Monetary Fund — who also happens to be the former Finance and Economy Minister of France — publicly says the “inherent volatility” of cross-border capital movements is a problem.
This guest post on the issue of the wider global impact of Brexit is from Paul Donovan, Global Economist at UBS in London. The British referendum decision to end the country’s EU membership may seem an isolated event. Something for the UK to worry about, certainly. Something for the EU to muse over. But not, necessarily, something that Asia should be concerned about. This attitude is a mistake, in my view. The UK referendum matters because it signals trends that will shape the world economy. These trends are important for Asia and Asian investors. Leaving aside the details of EU membership, the referendum result marks a victory for “anti-politics”. This is the politics of being against something rather than for something. Anti-politics suggests “if only we get rid of this one thing, all our troubles will be over”.
A guest post by Peter Doyle, economist and former IMF staffer _______ I very much hope—and expect—that Brexit will be rejected. But the 200-odd pages of HMT density on trade theory are intended to intimidate, not illuminate. They distract from the key issue; the impact of Brexit on the Euro.
We missed this earlier this month, but it is worth a reprise. How do you create a global reserve currency? Some clues by way of a speech by Benoît Cœuré, ECB board member, earlier this month: At constant exchange rates, the euro’s share of global foreign exchange reserves has remained broadly unchanged since 2007-08. The decline in 2014 in the share of the euro at market exchange rates was a reflection of the depreciation of the euro. There is therefore no evidence that global foreign exchange reserve managers actively rebalanced their portfolios away from the euro in 2014, or in 2011-2012 for that matter. This year the euro has been increasingly used as a funding currency by international borrowers, owing to the historically low interest rates in the euro area. Investment-grade corporations in advanced economies, mainly the United States, were particularly active issuers of international bonds denominated in euro, whose proceeds are swapped back into dollars. In April 2015 Mexico became the first sovereign state to issue a bond denominated in euro with a maturity of 100 years. Moreover, the share of the euro as an invoicing or settlement currency for extra-euro area trade remained broadly stable again last year. Finally, the euro is used as a reference currency for the anchoring of exchange rates, mainly in countries neighbouring the euro area and countries that have established special institutional arrangements with the EU or its Member States.
At length. Because haven’t you heard? Germany is a hypocritical creditor. It won’t give Greece the debt relief which it received itself in the 1950s. Thomas Piketty said it. So it must be true:
You know that the rise in the dollar is having an impact when US newspapers write trend pieces about how great it will be to take a vacation in Europe. Here’s an excerpt from a recent Washington Post story headlined “The best places in the world to visit while the dollar is this strong”:
The UK’s current account deficit is at its widest level in decades, and over the previous four posts we’ve managed to narrow down the cause to falling earnings from UK direct investments abroad since 2011. In our final post, we will do our best to figure out which specific investments are to blame, as well as what all of this means for people who actually live and work in the UK. Our main limitation is that the most detailed data end in 2012, although we can use that information to make some reasonable inferences about what has happened since then. About half of the decline in the UK’s earnings from foreign direct investment from 2011 to 2012 came from the “information and communication” sector, which includes publishing, media, software, data processing, and telecoms. Almost all of that decline can be attributed to the European Union. So what happened?
Given that modern-day warfare must at some point involve drones or autonomous vehicles, it makes sense that modern-day propaganda wars should involve Twitter and social media. The battle for cyber hearts and minds in that regard is now getting really interesting. One need only do a casual Twitter search for “пустые полки“, the Russian for empty shelves, to see what we mean. The backstory here is that in retaliation for US and EU sanctions, Russia has decided to ban the importation of large categories of food products from each.
Given that Russian subjects are reportedly being force fed a diet of Putin-esque mis-information over the downing of Malaysia Airlines Flight 17, it seems worth noting what strategists employed by Russian investment banks are saying about the threat of deeper sanctions against Russia. Here’s Charlie Robertson, global chief economist at Renaissance Capital (emphasis ours)…
Markets: Asian bourses offered mixed reactions to Monday’s latest slip in US technology stocks, while also reflecting caution ahead of the US Federal Reserve’s meeting that is due to commence later today. (FT’s Global Markets Overview)
Markets: More signs of a slowdown in the world’s second-largest economy had a ripple effects across Asia-Pacific markets. A preliminary or “flash” reading of HSBC’s closely watched purchasing managers’ index indicated that activity in China’s manufacturing sector hit a seven-month low in February, with an index reading of 48.3 missing expectations that were already subdued. (FT’s Global Markets Overview)
German court refers ECB bond-buying programme to ECJ || Apple spends $14bn on buybacks after share slump || SAS to raise $600m through shares and convertible bonds || UK trade deficit narrows sharply || Statoil pledges to curb spending plans || LinkedIn disappoints with subdued outlook || Bitcoin falls as major exchange MT.Gox halts withdrawals || Markets
Markets: Global markets maintained a broadly positive tone as investors digested the US Federal Reserve’s decision to start withdrawing economic stimulus measures while strengthening forward guidance on interest rates. On Wall Street, the S&P 500 equity index slipped less than 0.1 per cent cent from Wednesday’s record close, while the Dow Jones Industrial Average finished marginally higher. (Global Market Overview)
Markets: The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons. (Bloomberg) (Financial Times) Today: EU: CPI, US: Industrial Production; NY Fed Empire Manufacturing Survey for September
Asian stocks slightly higher || Big miss on China trade data || EU set for Germany clash on bank resolution || Murdoch summoned back to select committee || BoJ easing expectations fall || Germany, France benefit most from ECB policy || AIG and GE Capital ‘systemically important’ || US bank capital rules unveiled || Why China won’t buy the world
COMMENT AND CURIOS - The rise in US 10-year treasury yields is not just about the Fed. - Malcolm Gladwell on Albert O Hirschman and the power of failure. - Abenomics, Japan’s debt, and privatisation.
Asian shares fell back towards their 2013 lows. The MSCI Asia Pacific index fell 0.7 per cent, towards its level in January. Japan’s Nikkei swung to a loss from a 1.7 per cent increase earlier, and the Topix fell more than 1 per cent, down 15 per cent from the five-year high it set in May. (Bloomberg) The ESM will likely have a €50bn-€70bn limit on direct investments in banks. The condition on the bailout fund’s draft direct recapitalisation tool was outlined in a policy paper following six months of talks on breaking the “vicious circle” between sovereigns and banks. The limit to recapitalisation funds reflects the higher provisions on this kind of investment compared to the ESM’s more normal practice of lending to governments. (Reuters)
FURTHER FURTHER READING - John Jeremiah Sullivan on the publication of Cotton Tenants. - Early bird specials and US growth. - Some good ideas on infrastructure and profit repatriation from Larry Summers. - The mystery of why Portugal is so doomed.