News Items.
Thursday, 1 August 2019. By John Ellis
1. The Federal Reserve just cut rates for the first time in a decade—and landed itself in a dilemma. Yesterday afternoon (July 31), the Fed open market committee trimmed the target range of the federal funds rate by 25 basis points (or .25%), to between 2% and 2.25%. It also revealed that it will end the runoff of its balance sheet, known as quantitative tightening, tomorrow morning, two months ahead of schedule. The committee’s messaging—which is more important for shaping market expectations than the cut itself—changed a bit too, in particular the addition of “global developments” as a chief reason for its cut.
2. Austan Goolsbee: "Now that it has finally happened, don’t expect the Federal Reserve’s long-awaited rate cut to make all that much of a difference for the economy. A rather important problem is lurking for anyone relying on Fed cuts to accomplish something substantial, like preventing a slowdown or even staving off a recession. It’s not just that the Fed has a “short runway” — that rates are already so low that it is impossible to cut them four or five percentage points in the face of a recession, as the Fed has done in the past. The real problem is that recent experience and new economic research suggest that rate cuts in general may have a more modest impact on the economy now than they usually do."
3. The Federal Reserve’s quarter-point interest rate cut on Wednesday failed to have the desired effect on a widely followed bond market indicator of recession. The yield curve — reflecting the difference between the yields on three-month and 10-year US Treasury bonds — dropped further into negative territory, settling at minus 5.5 basis points. The measure has turned negative or “inverted” before every US recession of the past 50 years, and analysts said the development indicated that investors doubted the central bank had acted decisively enough to shore up the US economy.
4. The dollar saw a sustained rally this morning following signs that the US Federal Reserve intends to take a cautious approach to cutting US interest rates, hitting the euro and leaving the pound looking exposed amid political uncertainty in the UK.Sterling hit a 30-month low against the US currency— falling by as much as 0.4 per cent to $1.2100 during Asian trade, before reaching $1.2113 in the European morning — leaving it around levels last seen since January 2017. The euro also fell by as much as 0.4 per cent, taking its two-day decline to more than 1 per cent.
5. Eurozone inflation dropped by over 0.2% in July, from 1.11% to 0.88% to be precise, with a similar drop in headline inflation which is below 1.1% now. Excluding the index oscillations associated with Easter this year, the core inflation rate hasn't been this low since October 2017. The question is whether the monetary easing that the ECB has been pre-announcing - a new round of targeted long-term refinancing operations starting in September, and strong hints of lower rates and a resumption of asset purchases - can lift inflation again.
6. Hong Kong’s monetary authority cut the city’s base lending rate for the first time in more than a decade, reducing the cost of money in a slowing economy that had been squeezed by a year-long US-China trade war. The city’s de facto central bank reduced the base rate by 25 basis points to 2.5 per cent effective August 1, in lockstep with a widely expected cut of the same amount by the US Federal Reserve, the first reduction since the 2008 Global Financial Crisis.
7. China will need to come up with more incentives to convince consumers to spend to support economic growth, the results of a survey by the central bank released on Wednesday suggested. Consumers surveyed by the People’s Bank of China (PBOC) reported that income constraints and a preference to save money amid economic uncertainties were limiting their spending.
8. The head of the Chinese army in Hong Kong has spoken on the protests for the first time, saying the unrest has “seriously threatened the life and safety” of the people and should not be tolerated. The commander of the People’s Liberation Army (PLA) garrison in Hong Kong warned it was “determined to protect national sovereignty, security, stability and the prosperity of Hong Kong.”
9. The British Army is to engage in social media warfare, its most senior soldier has announced as he launched a new division of the military dedicated to fighting cyber threats. Lieutenant General Ivan Jones, the Commander of the Field Army, said the division would operate “above and below the threshold of conventional conflict" to counter malign Russian activity and threats from technologically sophisticated terror groups such as ISIS.
10. The two most important global issues of the coming decades are the return of rivalry between great powers and the intensification of climate change. Squarely at the intersection of these trends sits the Arctic, a region whose growing importance is reshaping the world’s geo-economics and geopolitics alike. There's no mystery why the Arctic is getting so much attention. Climate change is transforming the region, and thereby opening new shipping lanes and facilitating exploitation of undersea resources. The Northern Sea Route, which runs along Russia’s northern coast, slashes shipping times between East Asian and European ports compared to existing routes through the Strait of Malacca. And by some estimates, the Arctic contains 30 percent of the world's natural gas and over $1 trillion in strategically important rare-earth minerals.
11. The Arctic is suffering its worst wildfire season on record, with huge blazes in Greenland, Siberia and Alaska producing plumes of smoke that can be seen from space. The Arctic region has recorded its hottest June ever. Since the start of that month, more than 100 wildfires have burned in the Arctic circle. In Russia, 11 of 49 regions are experiencing wildfires. The World Meteorological Organization (WMO), the United Nations’ weather and climate monitoring service, has called the Arctic fires “unprecedented."
12. Russia has declared a state of emergency in four Siberian regions and dispatched the military to help in firefighting efforts after wildfires engulfed an area of forest the size of Belgium amid record high temperatures. Officials said 3m hectares of forest were ablaze on Wednesday as soaring temperatures, lightning storms and strong winds combined, sending smoke hundreds of miles to reach some of Russia’s biggest regional cities.
13. The same heat dome that roasted Europe and broke national temperature records in five countries last week has shifted to Greenland, where it is causing one of the biggest melt events ever observed on the fragile ice sheet. By some measures, the ice melt is more extreme than during a benchmark record event in July 2012, according to scientists analyzing the latest data. During that event, about 98 percent of the ice sheet experienced some surface melting, speeding up the process of shedding ice into the ocean. The fate of Greenland’s ice sheet is of critical importance to every coastal resident in the world, since Greenland is already the biggest contributor to modern-day sea level rise. The pace and extent of Greenland ice melt will help determine how high sea levels climb and how quickly.
14. Poland has abolished income tax for more than two million young people in a drastic attempt to reverse its “brain drain” and tempt graduates back from overseas. Nearly 1.7 million Poles, including 580,000 with university degrees, have found work in European countries such as Britain, Germany and Sweden, leaving the mother country with an acute shortage of skilled labour, in particular scientists, doctors and IT specialists. Mateusz Morawiecki, Poland's prime minister, told parliament: “It’s a gigantic loss. We have to draw the young people back. Over the past 30 years Poland has asked too much of its young people and has not done enough to help them. Employers were not ready to raise salaries for their young workers, so we will do it through scrapping their income tax.”
15. Business story of the day: JP Morgan Chase has signed a five-year deal with Persado, a marketing company that uses machines to create adverts. The bank signed the deal after a trial showed that mortgage and credit card adverts written by Persado’s artificial intelligence tools led to a 450 per cent increase in the number of viewers who clicked on the site.
16. Tech story of the day: A wobbly self-driving bicycle is a symbol of China's growing expertise in advanced chip design. The bike not only balances itself but steers itself around obstacles and even responds to simple voice commands. But it’s the brains behind the bike that matter. It uses a new kind of computer chip, called Tianjic, that was developed by Luping Shi and colleagues at Tsinghua University, a top academic institution in Beijing. The Tianjic chip features a hybrid design that seeks to bring together two different architectural approaches to computing: a conventional, von Neumann design and a neurologically inspired one. The two architectures are used in cooperation to run artificial neural networks for obstacle detection, motor and balance control, and voice recognition, as well as conventional software. In a paper outlining the chip and the bicycle, published in the journal Nature yesterday, the researchers suggest that such a hybrid architecture could be crucial for the future of artificial intelligence, perhaps even providing a route toward more general forms of AI. That’s a bit bold, given how far we are from AGI (Artificial General Intelligence), but Tianjic does show the growing value of new chip designs optimized for running AI algorithms.
17. There were more 27-year-olds in the United States than people of any other age in 2018. But for white Americans, the most common age was 58, according to a Pew Research Center analysis of Census Bureau data. The most common age was 11 for Hispanics, 27 for blacks and 29 for Asians as of last July, the latest estimates available. Americans of two or more races were by far the youngest racial or ethnic group in the Census Bureau data, with a most common age of just 3 years old. Among all racial and ethnic minorities, the most common age was 27.
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