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30 August 2019. By John Ellis.
1. The U.S. economic expansion cooled as it reached its 10th anniversary, despite strong pickups in corporate profits and consumer spending in the second quarter, with longer-run forces weighing on the outlook ahead. U.S. gross domestic product—the broadest measure of the nation’s output of goods and services—rose at a seasonally adjusted annual rate of 2.0% in the second quarter, a solid pace but down from a 3.1% rate in the first quarter and 2.9% overall in 2018, the Commerce Department said yesterday.
2. The decade-long expansion has showered the U.S. with staggering new wealth driven by a booming stock market and rising house prices. But that windfall has passed by many Americans. The bottom half of all U.S. households, as measured by wealth, have only recently regained the wealth lost in the 2007-2009 recession and still have 32% less wealth, adjusted for inflation, than in 2003, according to recent Federal Reserve figures. The top 1% of households have more than twice as much as they did in 2003. This points to a potentially worrisome side of the expansion, now the longest on record. If another recession comes, it could be devastating for people who have only just recovered from the last one.
3. Foreign investors are piling into U.S. stocks and bonds at the fastest pace in about a year, cashing in on a period of exceptional returns. In a world dominated by tepid economic growth, mediocre returns and a mountain of negative-yielding debt, foreign investors say they see American assets as a haven: They bought nearly $64 billion of U.S. stocks and bonds in June, the largest sum since August 2018, according to the latest available Treasury Department data.
4. Bankruptcies are rising in the U.S. oil patch as Wall Street’s disaffection with shale companies reverberates through the industry. Twenty-six U.S. oil-and-gas producers including Sanchez Energy Corp. and Halcón Resources Corp. have filed for bankruptcy this year, according to an August report by the law firm Haynes & Boone LLP. That nearly matches the 28 producer bankruptcies in all of 2018, and the number is expected to rise as companies face mounting debt maturities.
5. U.S. officials are seeking to block an undersea cable backed by Google, Facebook Inc. and a Chinese partner, in a national security review that could rewrite the rules of internet connectivity between the U.S. and China, according to people involved in the discussions. The Justice Department, which leads a multiagency panel that reviews telecommunications matters, has signaled staunch opposition to the project because of concerns over its Chinese investor, Beijing-based Dr. Peng Telecom & Media Group Co., and the direct link to Hong Kong the cable would provide, the people said.
6. Police arrested three prominent Hong Kong pro-democracy activists earlier today, while organizers of a planned massive rally for this weekend canceled the event after losing an appeal to hold the march, as authorities moved to crack down on continuing demonstrations. Activists Joshua Wong and Agnes Chow Ting, both founding members of the pro-democracy political group Demosisto, were arrested on Friday morning for alleged activities relating to inciting unauthorized assemblies. Demosisto said that Wong was pushed into a private car on the street around 7:30 a.m. near a rail station, while Chow was arrested at her home.
7. China’s paramilitary force staged a new anti-riot drill in Shenzhen yesterday, with exercises mirroring the ongoing anti-government protests in Hong Kong, mainland Chinese media reported. The drill, held in a sports stadium in Shenzhen, which borders Hong Kong, involved hundreds of armed officers clashing with people acting as protesters, according to Global Times, a nationalist tabloid published under the auspices of Communist Party mouthpiece People’s Daily.
8. Global payment transactions in July involving the Chinese yuan dropped to the lowest level since October 2018 as the Hong Kong protests, reduced global trade flows and its depreciation since the spring hinder offshore use, analysts said. The yuan’s share in international payments dropped to 1.81 per cent in July from 1.99 per cent in June, slipping behind the Canadian dollar as the sixth most-used international transaction currency, according to financial messaging service provider Swift.
9. China’s currency has dropped 3.7 percent against the dollar in August, putting it on track for the biggest monthly fall in more than a quarter of a century as Beijing hunkers down for a protracted trade war with the US. Beijing had allowed the currency, which it controls through a managed float, to fall to Rmb7.1494 a dollar by early Friday, with analysts expecting further weakness in the months ahead as policymakers seek to make Chinese exports more competitive and to partly blunt US tariff rises.
10. As China allows the yuan to depreciate to a level not seen in 11 years, financial authorities have rolled out measures to stem capital outflows from the mainland. The new rules include stricter oversight of banks in times of capital flight and restrictions on real estate developers' access to foreign currency bonds. If the financial system is judged to be on the brink on instability, the State Administration of Foreign Exchange, or SAFE, will declare the situation "abnormal."
11. The International Monetary Fund on Thursday found no fault with the recent weakening of the Chinese yuan, recommending that Beijing allow the currency to fall further if the trade war escalates, despite Washington branding China a “currency manipulator." The yuan, also known as renminbi, fell below a key level of seven to the US dollar earlier this month, leading the United States to allege that China is deliberately weakening the currency to gain trade advantages. China strongly hit back at the allegations, arguing that the yuan’s depreciation was a market move.
12. China's 'helicopter money" is blowing up a bubble. Over the past 10 years, Chinese banks have been on a credit and money creation binge. They have created Rmb144 trillion ($21 trillion) of new money since 2009, more than twice the amount of money supply created in the US, the eurozone and Japan combined over the same period. In total, China’s money supply stands at Rmb192 trillion, equivalent to $28 trillion. It equals the size of broad money supply in the US and the eurozone put together, yet China’s nominal GDP is only two-thirds that of the US. In a market-based economy constraints are in place, such as the scrutiny of bank shareholders and regulators, which prevent this sort of excess. In a socialist system, such constraints do not exist. Apparently, the Chinese banking system still operates in the latter.
13. Saudi Arabian Oil Co. is considering a plan to split the world's largest IPO into two stages, debuting a portion of its shares on the Saudi stock exchange later this year, and following up with an international offering in 2020 or 2021, according to people familiar with the plans. The company is leaning toward Tokyo as the venue for the second phase of its proposed plan, the advisers and officials said, as political uncertainty in the U.K. and China reduces the appeal of London and Hong Kong's markets.
14. A Scottish judge has temporarily rejected calls to block Boris Johnson’s decision to suspend parliament, in a blow to anti-Brexit campaigners. Lord Doherty ruled the prime minister had the powers to ask the Queen to prorogue parliament despite claims during an emergency court hearing on Thursday that Johnson was acting illegally and in breach of the constitution. Doherty said: “I’m not satisfied that it has been demonstrated that there’s a need for an interim suspension or an interim interdict to be granted at this stage.
15. A bullish Boris Johnson has sought to reassure Tory MPs queasy about his plan to suspend parliament by announcing he wants to “step up the tempo” of Brexit talks in Brussels. After his chief negotiator, David Frost, met EU officials in Brussels on Wednesday, the prime minister said on Thursday that both sides had agreed to meet twice a week.
16. German retail sales took a bigger battering than expected in July, retreating from a gain recorded in June to reveal the biggest drop this year in the latest indication that Europe’s largest economy may well slide into recession. Seasonally adjusted sales in real terms fell 2.2 per cent last month compared with June, the biggest decline since December’s 2.9 per cent drop and greater than the 1 per cent that analysts in a Reuters poll had predicted.
17. Michael Kretschmer is waging war on Germany’s rightwing populists. He is prime minister of Saxony, one of two east German regions that go to the pollsthis Sunday to elect a new parliament. In both Saxony and Brandenburg, the far-right Alternative for Germany could emerge victorious. Mr Kretschmer is trying to turn back the AfD tide. He is doing it with a punishing schedule of campaign appearances across Saxony, where he warns voters of the perils of xenophobic nationalism, massaging his message with free beer and sausages that he grills himself.
18. Wednesday night, Argentina President Mauricio Macri’s government announced it was forcing local bond investors to accept longer maturities as part of a series of measures aimed at staunching capital outflows and stabilizing the peso amid a deepening financial crisis. The rush for the exits was so intense that more than a dozen local mutual funds told regulators that they were temporarily suspending redemptions. The reaction in overseas markets was also swift. The country’s dollar-denominated bonds plunged toward a mere 40 cents on the dollar and the benchmark stock index reached a two-year low. Late yesterday, S&P Global Ratings said the forced extension of local bond maturities constituted a “selective default.” “For now, there is too much uncertainty for investors to feel comfortable,” said James Barrineau, the head of emerging market debt at Schroders. “I believe the government wanted to first stop the bleeding in the local market and then tackle broader debt issues.”
19. Senior commanders of the Colombian rebel group Farc have emerged from hiding and announced “a new stage of armed struggle”, marking a major setback to the country’s peace process. In a video published on YouTube, the guerilla group’s former political leader Iván Márquez read out a manifesto. Wearing army fatigues and carrying a pistol, he said: “History will record that we were forced to return to arms.”
20. Miniature brains grown in a lab exhibit remarkably similar activity to preterm babies’ brains. This dispels the idea that human brains need to develop in a womb or be connected to other organs to function. Scientists have long been trying to grow realistic models of human brains to better understand how our brains work and make it easier to test new treatments for neurological disorders. However, until now, it was assumed that these models wouldn’t be able to recreate the sophisticated connections found in real brains. “We previously assumed that the human brain needs some input from other organs and from the mother’s uterus to thrive,” says Alysson Muotri at the University of California, San Diego. More coverage here.
21. Publication of the largest-ever study of the roles of genes in homosexual behavior is fanning the debate over whether being gay is due to genes or environment. First reported at a genetics conference in 2018, the study found five genetic variants associated with having a same-sex sexual partner (SN: 10/20/18). But those variants, called SNPs, don’t predict people’s sexual behavior, researchers report in the Aug. 30 Science. “There is no ‘gay gene’ that determines whether someone has same-sex partners,” says Andrea Ganna, a geneticist at the Broad Institute of MIT and Harvard and the University of Helsinki.
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