by John Ellis. 18 July 2019.
1. Nobody saw this coming. The Bank of Korea unexpectedly cut its benchmark interest rate as it slashed economic growth and inflation forecasts, joining a growing number of central banks acting to shore up their economies. The BOK cut the seven-day repurchase rate to 1.5% from 1.75%. It now expects the economy to grow 2.2% this year, versus 2.5% projected in April, and inflation to rise 0.7%, versus 1.1% previously.
2. Indonesia's central bank today cut its benchmark interest rate for the first time in nearly two years. It expects a similar move by the U.S. Federal Reserve at its July policy meeting. Bank Indonesia's seven-day reverse repo rate now stands at 5.75%, down 25 basis points from 6%. The decision came after the rate was left unchanged for seven consecutive meetings.
3. Japan's exports to China fell 10.1% on the year in June and marked the fourth straight monthly decline, as the slowing Chinese economy casts a pall on the outlook for its neighbor. Data released on Thursday by Japan's finance ministry showed China-bound shipments of chipmaking equipment fell 27.1% while those of electronic components dropped 21.3%, though auto exports increased 78.7%. Imports from China also declined, by 5.3%, as inbound shipments of smartphones and other communications equipment declined 24.8%.
4. Progress toward a U.S.-China trade deal has stalled while the Trump administration determines how to address Beijing’s demands that it ease restrictions on Huawei Technologies Co., people familiar with the talks said. No face-to-face meetings have taken place and none has been scheduled since President Trump and President Xi Jinping of China met last month in Japan and agreed to resume talks.
5. Is China's the world's loan shark? A team of researchers based out of the Kiel Institute for the World Economy suggests it may well be. They discovered that half of all foreign debt to Chinese state-run banks and institutions is “hidden” from the normal databases. Consequently, “debt levels and the debt service burdens in two dozen developing countries are much higher than previously thought.” Read the whole thing.
6. China’s inflation figures revealed two separate headaches for Beijing on Wednesday, with consumer prices continuing to rise, while the prices producers charged at factory gates in June threatened to dip into deflation. The consumer price index (CPI) stayed at 2.7 per cent, the same as in May, which was the highest reading for 15 months. Meanwhile, the producer price index (PPI), the price charged to buyers from producers at the factory gates, is teetering on the brink of deflation, reporting at 0.0 per cent in June year on year, down from 0.6 per cent in May and below a Bloomberg poll, the median forecast of which was 0.1 per cent.
7. China is racing to keep foreign enterprises in-country, dangling special benefits so that the advantages of staying outweigh the heavy tariffs imposed by the U.S. A year into the trade war with Washington, more than 50 global companies, including Apple and Nintendo, have announced or are considering plans to move production out of China, Nikkei research has found. And not just foreign companies. Chinese manufacturers, as well as those from the U.S., Japan and Taiwan, are part of the drain, including makers of personal computers, smartphones and other electronics.
8. Chinese companies are buying back record amounts of stock, a move authorities have encouraged as they seek to protect a fragile market recovery. Buybacks were previously only allowed in a few limited cases, for example to offset the dilution caused by employee stock options. But as they battled a market selloff last year, regulators made share repurchases easier by permitting them for a broader range of purposes, such as defending corporate value or protecting shareholders’ interests.
9. Passive is back. A decade-long shift of money and power from old-fashioned money managers into index funds resumed its march in 2019. Net inflows into index-tracking U.S. mutual funds and exchange-traded funds rose by around 50% in the second quarter of 2019 from a year earlier, according to Morningstar data. For the year ended June 30, passive net inflows increased by about 1% after contracting in the year-ago period. Net inflows measure the difference between money coming in and leaving.
10. Eurointelligence: "The European automobile manufacturers' association said yesterday that new registrations of private cars had fallen by 3.1% in the first half of the year. This is a fairly significant slowdown that can no longer be simply dismissed on the grounds of new emissions testing procedures, the industry’s favorite excuse at the end of last year. Among the car makers, the worst-affected is Fiat-Chrysler, with a 10% fall in new registrations, followed by Ford and VW."
11. Russia has signaled its willingness to join an EU payments channel designed to circumvent US sanctions banning trade with Iran, but has called on Brussels to expand the new mechanism to cover oil exports. Moscow’s involvement in the channel, known as Instex, would mark a significant step forward in attempts by the EU and Russia to rescue a 2015 Iran nuclear deal that has been unravelling since the Trump administration abandoned it last year.
12. The United States is sending hundreds of troops to Saudi Arabia in what is intended as the latest show of force toward Iran, two Defense Department officials said Wednesday. The roughly 500 troops are part of a broader tranche of forces sent to the region over the past two months after tensions between Washington and Tehran escalated.
13. Mainland Chinese officials in charge of Hong Kong affairs are working on a comprehensive strategy to solve the city’s political crisis that will be presented to the top leadership for deliberation soon, according to people familiar with the discussion, but resorting to military force is not on the table. Officials are developing both an immediate strategy to handle the increasingly violent weeks-long protests in the city, as well as a long-term plan that may lead to an overhaul of Beijing’s approach to managing the restless former British colony.
14. Suspected nation-state hackers from Russia, Iran and elsewhere have launched nearly 800 cyberattacks against political organizations over the past year that have been detected by Microsoft Corp., with the vast majority of the attempts targeting groups based in the U.S. Think tanks and nongovernmental groups that work with candidates or political parties—or on issues important to their campaigns—have suffered most of the attacks. The assaults could be a precursor to direct attacks on campaigns and election systems, a trend in recent election cycles in the U.S. and Europe, Microsoft said Wednesday.
15. House Speaker Nancy Pelosi set a Friday deadline for Congress and the Trump administration to reach an agreement on raising the U.S. government’s borrowing limit and setting new overall spending levels. Mrs. Pelosi, who has been regularly speaking with Treasury Secretary Steven Mnuchin, said she wanted to vote on any potential agreement next Thursday, a day before the House goes on recess. To achieve that, any agreement would need to be completed by this Friday to give the chamber enough time to move the deal through the legislative process.
16. Close to five decades after the Supreme Court’s Roe v. Wade ruling enshrined a woman’s constitutional right to terminate a pregnancy, the unity of the antiabortion movement is cracking. For years, those opposed to abortion have largely hewed to a legal strategy to pass laws adding incremental limitations to the historic 1973 ruling. Now, an ascendant, activist wing is pressing for legislation that doesn’t just limit the procedure, but outlaws it. Emboldened by President Trump’s Supreme Court picks, the activists have grown impatient with what they see as small developments, and instead are actively seeking a legal fight with the goal of overturning Roe. Read the whole thing.
17. The World Health Organization (WHO) yesterday declared that the Ebola outbreak in the Democratic Republic of the Congo (DRC), which surfaced in August 2018, is an international emergency. The declaration raises the outbreak’s visibility and public health officials hope it will galvanize the international community to fight the spread of the frequently fatal disease.
18. In a long-feared development, an extremely damaging banana disease has apparently reached Latin America. Late last week, the Colombian Agricultural Institute (ICA) in Bogotá confirmed that four plantations in northern Colombia have been quarantined because of suspected infection with Fusarium wilt tropical race 4 (TR4), a fungus that kills plants by clogging their vascular system. Already widespread in Asia, the disease can wipe out entire plantations.
19. Some welcome news: Three decades of ever-escalating deaths from drug overdoses in the United States may have come to an end, according to preliminary government data made public Wednesday. Total drug overdose deaths in America declined by around 5 percent last year, the first drop since 1990. The decline was due almost entirely to a dip in deaths from prescription opioid painkillers, the medicines that set off the epidemic of addiction that has lasted nearly two decades. Fatal overdoses involving other drugs, particularly fentanyl and methamphetamine, continued to rise.
Quick Links: How to stay financially stable when the world might be falling apart. Bank of England's Carney appears out of the race for IMF top job. Much ado about data: How America and China stack up. China’s response to Facebook’s Libra could be ‘Hong Kong style’ cryptocurrency. China's drawdown of US debt continues, narrowing lead over Japan. Fentanyl production and trafficking are likely to expand to become a global problem. Asia's methamphetamine industry is a $60 billion business. El Chapo is contained. The drug war is not. Joshua trees facing extinction. Estimating and tracking the remaining carbon budget for stringent climate targets. Planting trees could buy more time to fight climate change than thought. Sort of like Spotify for scientific research papers. How Elon Musk plans to stitch a computer into your brain. Boston Dynamics is ready to start selling robots. Flamethrower drones are about to go on sale. Netflix disappoints. BBC could become a subscription service, says director-general. Don't read this. And then there's this headline: "Yield-starved investors snap up debt from obscure Italian bank."
Political Links: House votes to repeal Obamacare tax. A new Economist/YouGov poll finds President Trump running even (37%-39%) with a "generic" Democratic presidential candidate. The 2020 campaign will be more racially divisive than 2016 was. "Lock her up" gives way to "send her back." Mr. Trump's attacks on four freshman Congresswomen are working with his "base." Recode interview with 2020 presidential candidate Sen. Michael Bennet (D-CO). George Will recently opined that Mr. Bennet might be the Democrats' best chance to defeat President Trump. Senators Harris and Warren surge in new California poll. Eric Trump: ‘95 percent’ of Americans agree with my father. It's still possible that Secretary of State Pompeo will run for the US Senate next year. The incumbent, Sen. Pat Roberts (R-KS), is retiring. House shoots down attempt to immediately impeach Trump. House holds William Barr, Wilbur Ross in criminal contempt of Congress. Why George W. Bush is Africa’s favorite US president.