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Friday, 12 July 2019.
1. A week after OPEC agreed to keep oil production restrained until early next year, the group’s first forecasts for 2020 showed it faces an even longer and tougher challenge. The Organization of Petroleum Exporting Countries, which pumps 40% of the world’s oil, estimated that it’s producing about 560,000 barrels a day more than will be needed next year as the ongoing surge in U.S. shale threatens to deliver another surplus. Supplies from producers outside the cartel will grow by more than twice as much as global oil demand, it forecast.
2. There are signs that the golden age of globalization may be over, and the great convergence is giving way to a slow unravelling of supply chains. Global trade growth has fallen from 5.5% in 2017 to 2.1% this year, by the OECD's reckoning. Global regulatory "harmonization" has given way to local approaches, such as Europe’s data-privacy laws. Cross-border investment dropped by a fifth last year. Soaring wages and environmental costs are leading to a decline in the “cheap China” sourcing model. Says one expert: “We’re heading into a post-global world.”
3. President Trump yesterday complained that China hasn’t boosted its purchases of U.S. farm products, a promise he claims he secured in a meeting with his counterpart Xi Jinping in June. But according to officials in Beijing familiar with the talks, no such agreement was made. China’s Commerce Ministry yesterday also indicated that in their view, substantial discussions have yet to restart even though both sides spoke on the phone.
4. Eurointelligence: For all the president's rhetorical impulsiveness, the Trump administration’s policy on trade increasingly comes across as a series of strategically orchestrated actions. German cars are still an issue, but the complaints have widened: European Airbus subsidies; NordStream 2; the ECB’s monetary policies; the European Commission’s competition policies; and now the French digital tax. The Trump administration is the ultimate test of the EU’s willingness and ability to defend its own interest.
5. Jerome Powell amplified his rate cut signal, suggesting there's room to ease as the relationship between inflation and jobs has "become weaker and weaker." The Fed chief told the Senate the economy is doing well but officials want "to use our tools to keep it there." The so-called "neutral rate" is lower than past estimates, he added. Asked if President Trump's pressure affects policy, he said "not at all."
6. American borrowing costs keep plunging, and that is signaling something important: Some of the basic assumptions of the most influential economic technocrats in the land are, for the time being at least, off base. Ten-year United States Treasury bonds are yielding only 1.95 percent, down from around 2.4 percent in May and 3.2 percent as recently as November. Global investors are essentially flinging money at any creditworthy entity that might wish to borrow. Rates on home mortgages, corporate bonds and the debt of countries around the world have been falling as well.
7. A U.S. interest-rate cut may be on the horizon, but a JPMorgan Asset Management fund is turning away from emerging-market assets. The money manager’s Global Income Fund has halved its holdings of developing-nation fixed income and equities to 3% each, opting instead to buy European corporate junk bonds and Treasuries, according to its co-manager Eric Bernbaum. The $50 billion strategy is skeptical about emerging Asia’s prospects due to the region’s exposure to the U.S.-China trade war.
8. Singapore's shock economic contraction sent a warning to the world economy as simmering trade tensions wilt business confidence and activity. GDP shrank an annualized 3.4% in the second quarter from the previous three months, the biggest decline since 2012. That was worse than economists had expected.
9. Eurozone industrial production grew more than expected in May, with all the major economies reporting a monthly expansion, but sluggish global trade and economic growth continue to threaten the health of the sector. Data released on Friday showed industrial production grew by 0.9 per cent compared to the previous month. This was higher than the 0.2 per cent expected by economists polled by Reuters. It also marked a change of direction after two consecutive months of contraction.
10. German carmaker Daimler has warned on profits for the fourth time this year after being forced to make further provisions to deal with a regulatory crackdown on alleged manipulations of diesel emissions. Despite having already warned on profits on June 23, the Mercedes-Benz maker said it had uncovered new information that would push its second-quarter earnings “significantly below market expectations."
11. Some investors are raising concerns that the Germany’s dwindling debt pile is actually a problem. Bunds — as German bonds are known — are the eurozone’s benchmark safe asset. If there are not enough of them around, banks could run short of high-quality collateral for lending, while the European Central Bank will struggle to find enough bonds to buy if it wants to revive its quantitative easing program to combat a downturn.
12. US loan funds have suffered their longest streak of withdrawals in more than four years, as the prospect of interest rate cuts by the Federal Reserve crimped demand for the floating-rate investments.
13. President Trump blasted Bitcoin and said cryptocurrencies, including Facebook's Libra, should be "subject to all banking regulations." Trump joined politicians from both sides of the aisle in expressing skepticism about Facebook's ambitions with Libra.
14. President Trump yesterday assailed Facebook, Google and Twitter — accusing them of exhibiting “terrible bias” and silencing his supporters — at a White House “Social Media Summit” that critics chastised for giving a prominent stage to some of the Internet’s most controversial, incendiary voices. For Mr. Trump, the conference represented his highest-profile broadside against Silicon Valley after months of accusations that tech giants censor conservative users and websites.
15. President Emmanuel Macron’s government waded into a potentially messy fight with the White House on Thursday as French lawmakers voted to impose a tax on Facebook, Google and other American technology giants despite a blunt warning from the Trump administration. The measure, which the White House said could amount to an unfair trade practice, is likely to be signed into law by Mr. Macron within two weeks, placing France squarely in the cross hairs of President Trump’s escalating trade wars.
16. Turkey has begun taking delivery of Russia’s S-400 air-defense system, the Turkish defense ministry said on Friday, completing a deal that has unnerved Turkey’s NATO allies and is likely to trigger sanctions from the United States. The first components for the system arrived at an air base in Ankara, the Turkish capital, on Friday, the defense ministry said in a statement.
17. If you ask senior officials at the Central Intelligence Agency what keeps them up at night, one of the answers you will get is "Pakistan's nuclear weapons." Hassan Abbas, in Pakistan’s Nuclear Bomb, has written "the fullest, best-sourced account yet of Pakistan’s nuclear program...he provides a great deal of useful detail on how the country came to be the world’s leading nuclear proliferator, selling technology not only to North Korea but also to Libya and Iran." The London Review of Books review of Mr. Abass' work is worth reading in full. The subject matter could hardly be more relevant.
18. President Trump said he was dropping efforts to get a citizenship question on the 2020 census but would instead seek a tally of citizens and noncitizens by directing federal agencies to share records with such data.
19. The crowded Democratic presidential field has sorted into a top tier of five candidates after the first debate, with former Vice President Joe Biden (26%) maintaining a lead and Sen. Elizabeth Warren (19%) narrowly behind him, a new Wall Street Journal/NBC News poll finds. A new Fox News poll finds Biden way ahead of his Democratic rivals in South Carolina, a key early primary state.
20. Sanders and Warren voters have surprisingly little in common. In poll after poll, Sanders appeals to lower-income and less-educated people; Warren beats Sanders among those with postgraduate degrees. Sanders performs better with men, Warren with women. Younger people who vote less frequently are more often in Sanders’ camp; seniors who follow politics closely generally prefer Warren.
21. Milton Friedman said: "Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable." Writing in the London Review of Books, John Lanchester says: "The list of progressive alternatives which currently fit that description is one item long: universal basic income." Read the whole thing.
Quick Links: H2O is an omen — a liquidity crisis lurks around the corner. The McKinsey report on the future of work in America is here. Best way to fight climate change? Plant a trillion trees. Giant batteries and cheap solar power are shoving fossil fuels off the grid (to some degree). China has slashed clean energy funding by 39%, leading a global decline. The world's 2-billion-ton trash problem just got more alarming. A 100-hour MRI scan captured the most detailed look yet at a whole human brain. Germany belatedly finds that most new drugs did not offer meaningful benefits. Why are elite athletes different than the rest of us? Take a look at their microbes. Scientists may have found a better way to spot early signs of dementia: our eyes. Breakthrough in "artificial muscles." Artificial intelligence has now pretty much conquered poker. The explosion of tech hubs across Africa is showing no signs of slowing down. Julie Sweet will be first woman to lead the consulting firm Accenture. The $50 dress that conquered Britain.
Political Links: African priests are now the future of the Catholic Church in the United States. The von der Leyen nomination (to be the next European Commission chief) has turned into a first-order crisis for the grand coalition in Berlin. Adam Tooze's essay on German politics is here. Taiwan's Tsai doubles down on US ties to boost reelection bid. President Trump is on something of a roll. Mr. Trump does not want Jeff Sessions to run for Senate in Alabama. Speaker Pelosi and Rep. Ocasio-Cortez clash drags on, threatening Democratic unity. Peggy Noonan: Ocasio-Cortez emerges as a one-woman Committee to Re-Elect the President. Calpers fell short of its own goals in Fiscal 2019. Brazil’s Bolsonaro offers US ambassador post to his youngest son.