1. US bank stocks extended their slide in pre-market trading on Friday, after a sharp selloff in regional lenders that reverberated through Asian and European trading hours. Shares of Bank of America Corp., Citigroup Inc., Morgan Stanley and Wells Fargo & Co. slid more than 1.5% at 4:40 a.m. New York time. The drops come after regional bank stocks tumbled on Thursday, led by declines at Zions Bancorp and Western Alliance Bancorp, which said they were the victims of fraud on loans to funds that invest in distressed commercial mortgages. (Source: bloomberg.com)
2. The FTSE 100 has dropped sharply in a global stock market sell-off after a rout in US regional bank shares raised concerns about the health of credit markets in America. Banking shares fell heavily and investors moved into safe-haven assets, pushing the gold price to a new high of $4,347.75 an ounce. (Source: thetimes.com)
3. The Economist:
It is….increasingly likely that governments will…resort to inflation and financial repression to reduce the real value of their high debts, as they did in the decades after the second world war. The machinery for such a strategy is in place at central banks, which have a large footprint in bond markets. Already, populists such as Mr Trump and Nigel Farage in Britain attack their country’s central banks with proposals that would weaken the defenses against inflation.
Price rises are unpopular—just ask the hapless Joe Biden—but they do not need political support to get going. Nobody voted for them in the 1970s or in 2022. When governments cannot get their act together, and run economic policies that are unsustainable, bouts of inflation just happen. By the time markets wake up, it is too late.
All the more reason to think ahead and reflect on how inflation harms the economy and society. It redistributes wealth unfairly: from creditors to debtors; from those with cash and bonds to those who own real assets such as houses; and from those who agree on contracts and wages in cash terms to those wily enough to anticipate higher prices. It causes what John Maynard Keynes called an “arbitrary rearrangement of riches”. And that could happen just as societies are grappling with other transfers of wealth that the losers will also see as unfair: in the labour market, as AI takes on routine office work; and through inheritance, as baby-boomers bequeath vast property wealth to those lucky enough to have the right parents.
This multi-pronged upheaval of fortunes could wreck the middle class, which binds democracies together, and scramble the social contract. (Source: economist.com)
4. Robin Brooks:
So here’s what we know. This year’s gold rally has come in fits and starts. The April move was about a loss of confidence in the Dollar, a move that’s since run out of steam. The move since Jackson Hole is about “global debasement” and coincides with three notable developments: (i) there’s a global rise in long-term government bond yields as markets increasingly worry about unsustainable fiscal policy in many places; (ii) the universe of safe haven countries has shrunk because Germany and Japan are at the forefront of the global rise in yields; and (iii) the few safe haven countries that remain - notably Switzerland - are small, with limited capacity to absorb safe haven inflows. These three forces are supercharging the rise in gold prices, which is really about the global deterioration in fiscal sustainability and growing risk that debt overhangs will be inflated away.
What we don’t know is who is driving the latest rise in gold prices. There’s endless rumors about another round of central bank buying, but I am skeptical. There’s a clear macro catalyst to the latest move in the form of Jackson Hole. I find it hard to believe that central banks in emerging markets will be trading such a catalyst. It’s more likely that this is a genuine market move, with a growing number of investors worried about fiscal sustainability and debasement. If that’s true, the gold move can go a lot further. (Source: substack.com)
5. President Trump’s tariffs will cost global businesses upward of $1.2 trillion in 2025, with most of the cost being passed onto consumers, according to a new analysis from S&P Global. In a white paper released yesterday, the firm said its estimate of additional expenses for companies is probably conservative. The price tag comes from information provided by some 15,000 sell-side analysts across 9,000 companies who contribute to S&P and its proprietary research indexes. “The sources of this trillion-dollar squeeze are broad. Tariffs and trade barriers act as taxes on supply chains and divert cash to governments; logistics delays and freight costs compound the effect,” author Daniel Sandberg said in the report. “Collectively, these forces represent a systemic transfer of wealth from corporate profits to workers, suppliers, governments, and infrastructure investors.” While administration officials have insisted that exporters will be forced to bear the greater share of the levies, the S&P analysis suggests that is only partly true. In fact, the firm says that just one-third will be borne by companies, with the rest falling on the shoulders of consumers, under conservative estimates. (Sources: cnbc.com, view.highspot.com)
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