Tuesday News Items
6 August 2019. By John Ellis.
1. The inversion of the US yield curve, a measure investors view as the surest predictor of an impending recession, on Monday became deeper than at any point since the onset of the financial crisis a decade ago, as the US-China trade war spread to the currency markets. The difference between the yield on three-month Treasury bills and the benchmark 10-year bond, which has turned negative or “inverted” before every US recession of the past 50 years, widened to minus 32 basis points at its worst, after Beijing allowed its currency to weaken against the dollar past the symbolic Rmb7 level.
2. The U.S. Treasury labeled China a currency manipulator after the Chinese central bank let the yuan depreciate, capping a day of trade-war escalations that sparked a global fall in financial markets and fears the clash could stall the U.S.’s economic expansion. The uncertainty could pressure the Federal Reserve to consider more interest-rate cuts, following its decision last week to lower rates for the first time in more than a decade.
3. China took steps to limit weakness in the yuan, providing some stability to global financial markets in the wake of Monday’s rout, and said it won’t depreciate the currency to be competitive. The People’s Bank of China on Tuesday set the daily currency fixing stronger than analysts expected and announced the planned sale of yuan-denominated bonds in Hong Kong. The moves, which came after the U.S. labeled the country a currency manipulator, helped drive the yuan up 0.2% a day after it sank the most since 2015. The central bank also rejected the accusation it manipulates the yuan.
4. The biggest slide in China's yuan since 2015 threatens to revive concerns about the capital flight back then that helped spur the country to spend US$1 trillion of its reserves. For all its perceived success in tightening regulations and strengthening scrutiny of funds moving abroad, the trauma of that period poses a big reason to avoid any continuous depreciation. An even more-important financial consideration could be the stockpile of Chinese dollar debt, which has more than doubled since the end of 2015 to US$729.8 billion, according to data compiled by Bloomberg. Issuance so far this year is a record US$138 billion. "Capital flight is still a major concern," said Fraser Howie, who has two decades of experience in China's financial markets and co-wrote the 2010 book "Red Capitalism." "They are not going to be doing anything foolish."
5. Asian equity markets trimmed earlier declines and European bourses edged lower after the heaviest fall for global shares in a year and a half. The tamer moves in financial markets on Tuesday followed gyrations that swept from Asia, to Europe and then Wall Street after China let its currency fall below a crucial level for the first time since the financial crisis. MSCI’s broad index of developed and emerging market equities slumped 2.5 per cent on Monday, the steepest decline since February 2018.
6. Investors fled junk bonds amid the market turmoil that followed the escalation of the US-China trade war on Monday, with the spread over risk-free bonds widening by the most in three years. The spread between US junk bond yields and government debt grew to 4.5 per cent, a 34 basis point jump from Friday and the largest one-day move in basis points since June 2016, according to the ICE Bank of America high yield index.
7. Investors the world over are finding an unusual place to hide as the trade war between the U.S. and China roils global markets: Bitcoin. “It definitely appears to be acting somewhat like a safe haven,” said Brad Bechtel, head of foreign exchange at Jefferies LLC. “When markets are calm and rallying, then Bitcoin sort of falls by the wayside," he wrote by email. "But every time we see turbulence in the market and it starts to sell off, you see Bitcoin” and other safe-haven assets rally.
8. The currency that was at the epicenter of the 1997 Asian financial crisis is emerging as the region’s safest bet. The Thai baht has remained little changed during this month’s trade war turbulence, while peers such as the rupee and the won have weakened almost 3%. And strategists say the currency isn’t likely to lose its newfound status as a haven anytime soon, thanks to Thailand’s rising current-account surplus and record foreign reserves.
9. Hong Kong’s protests against the mainland government’s increasing reach are emerging as bigger, more frequent and more violent than previous pro-democracy movements. In a contrast to 2014, when demonstrations were largely led by students, the current action has been embraced by a broader cross-section of Hong Kong society—including civil servants, pop stars, doctors, shopkeepers and people of all ages. And those taking part in more radical acts of civil disobedience are finding wider support. The shift in attitude means Hong Kong’s resistance has become the biggest open rebellion against China’s ruling Communist Party since President Xi Jinping took power in 2012.
10. China urged Hong Kong citizens to stand up to protesters challenging the government, after a general strike that led to a day of traffic chaos, mob violence, tear gas and flight cancellations. In some of the Chinese government’s strongest comments yet on the unrest gripping the Asian financial hub, officials from the Hong Kong and Macau Affairs Office in Beijing reiterated support for Hong Kong leader Carrie Lam and said efforts to force her resignation would fail. Office spokesman Yang Guang defended the police response and called on residents to “stand firm and guard our beautiful homeland,” citing a few examples of local people criticizing protesters. “We would like to make it clear to the very small group of unscrupulous and violent criminals and the dirty forces behind them: Those who play with fire will perish by it,” Yang said.
11. Protests broke out across Pakistan yesterday after Delhi imposed direct rule on Indian-controlled Kashmir in the most radical shake-up of the disputed border region in seven decades. Narendra Modi, the Indian prime minister, shocked Delhi and Islamabad when his government scrapped a law that has guaranteed a degree of autonomy to the state of Jammu and Kashmir since 1954. Kashmir is India’s only Muslim-majority state and government opponents fear the move is part of a plan to flood the region with Hindu immigrants. Thousands of extra troops have been rushed in and curfew-like conditions imposed.
12. North Korea launched two short-range ballistic missiles Tuesday morning, Seoul officials said, the latest weapons test to challenge both the U.S. positioning in stalled nuclear negotiations and its tolerance for such provocations. Pyongyang’s latest weapons test represents its fourth in 13 days. The missiles were launched from the North’s South Hwanghae province, on the country’s west coast, before splashing into the waters between South Korea and Japan, Seoul’s military said.
13. The Trump administration imposed a total economic embargo against the government of Venezuela, a significant escalation of pressure against the regime of President Nicolás Maduro and countries including Russia and China that continue to support him, a senior administration official said. President Trump late Monday signed an executive order freezing all government assets and prohibiting transactions with it, unless specifically exempted, the first action of its kind against a government in the Western Hemisphere in more than 30 years.
14, After less than a month in office Boris Johnson’s nascent government is squaring up for a no-confidence vote, attempts to halt Brexit and possibly a general election. When parliament returns from its summer recess on September 3, pro-Remain MPs are all but certain to hold a no-confidence vote to try and bring down the government in an effort to stop the UK leaving the EU without a deal. But the prime minister and his advisers — led by Dominic Cummings — believe that the threat to their Brexit plan is surmountable. If the government falls, Mr Johnson intends to stand firm, hang on in office and delay an election until after October 31, when the UK will automatically leave the EU.
15. Support for Chancellor Angela Merkel’s junior coalition partner slipped to its worst-ever in an opinion poll published on Tuesday, strengthening the possibility an already frayed government could fall apart. The Social Democratic Party, or SPD, got only 11.5% in the latest Insa poll for Bild newspaper, the lowest ever in that survey and one percentage point down on the previous week, Bild said. Merkel’s conservative CDU/CSU bloc scored 27.5%, while the far-right AfD party was on 15%, both up by half a point. Backing for the Greens was down one point on 23.5%.
16. Matteo Salvini, Italy’s de facto leader, gained new powers to curb immigration while tightening his grip on the government, as the populist coalition won a key vote in parliament. Parliament’s upper chamber gave final approval to security legislation Salvini has been calling for ever since his League party scored a resounding victory in European elections in May.
17. A group of hackers linked to Russian spy agencies are using "internet of things" devices like internet-connected phones and printers to break into corporate networks, Microsoft announced on Monday. The Russian hackers, who go by names like Strontium, Fancy Bear, and APT28, are linked to the military intelligence agency GRU. The group has been active since at least 2007.
18. A California-based company called SkyCool Systems is in the early stages of manufacturing a cooling system that’s more energy efficient than anything humans have used for a century. It’s doing it using radiative cooling, a concept that was used in the Middle East and India hundreds of years ago. Inventions like this are potential game-changers as the world stares down a growing climate crisis, spurred by emissions pumped into the atmosphere by human activity. Globally, about 12% of non-carbon dioxide emissions can be attributed to refrigeration and air conditioners, according to the US Environmental Protection Agency.
19. For the first time, doctors in the U.S. have used the powerful gene-editing technique CRISPR to try to treat a patient with a genetic disorder. "It is just amazing how far things have come," says Victoria Gray, 34, of Forest, Miss. "It is wonderful," she told NPR in an exclusive interview after undergoing the landmark treatment for sickle cell disease. Gray is the first patient ever to be publicly identified as being involved in a study testing the use of CRISPR for a genetic disease.
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Correction: Yesterday's News Items should have said that the December 2012 massacre in Newtown, Connecticut took place at the Sandy Hook Elementary School, not the Sandy Hill school.
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