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31 August 2019. By John Ellis
1. The global stock of negative-yielding debt is now in excess of $17 trillion as rising market volatility lends extra force to this year’s unprecedented bond rally. Thirty percent of all investment-grade securities now bear sub-zero yields, meaning that investors who acquire the debt and hold it to maturity are guaranteed to make a loss. Yet buyers are still piling in, seeking to benefit from further increases in bond prices and favorable cross-currency hedging rates—or at least to avoid greater losses elsewhere.
2. Argentina imploded. Beijing let the yuan slip to the lowest in at least a decade. Global central banks signaled they are spooked about slowing growth by rushing to cut rates. By almost any measure, August was a month to forget for emerging-market investors. Consider the following: Developing-nation currencies had their worst August in at least 22 years, puncturing a carry trade bet that had just begun to turn positive. Investors yanked so much cash from exchange-traded funds that flows are poised to turn negative for the year. On top of that, dollar-bond sales fell to a 42-month low.
3. Deja vu all over again: Argentina has begun the process of reorganizing its towering debts, after falling into a technical default that hit bond prices and the currency on Friday. Buenos Aires announced on Wednesday that it would postpone $7 billion of payments on its short-term local bonds for up to six months while it pushes for a “voluntary re-profiling” of $50 billion of longer-dated debt mostly owned by foreign investors. The government also said it plans to delay repayment of $44 billion of loans from the IMF. Argentina has already defaulted on its debt eight times, twice since the turn of the millennium.
4. Nonperforming loans in China grew 10% during the first half of 2019 to 2.24 trillion yuan ($313 billion), with more small and mid-tier companies failing to keep up with their debts. Almost 5% of all lending in China is in default or close to it, once the 3.63 trillion yuan of subperforming loans -- typically referring to overdue loans that are not in default -- are included as well. The burden weighs especially on smaller banks that lack the same troves of cash as their state-backed compatriots.
5. Mounting household debt has caused Chinese consumers to refrain from buying home appliances, squeezing a domestic industry that has long relied on government subsidies to stay competitive. Apart from March, appliances sales undershot year-earlier numbers every month between July 2018 and June this year, data from China Market Monitor shows. Sales fell 8% for the 12 months overall. At the end of 2018, the balance of household debt exceeded 47 trillion yuan (about $6.5 trillion at today's rates), up 140% from five years earlier. The load is about 53% of China's gross domestic product, up from 33% in 2013.
6. As the trade war with the United States continues to gather pace, manufacturers in China remain gloomy about their prospects, with the sector activity contracting for the fourth successive month in August. The manufacturing purchasing managers’ index (PMI), released by the National Bureau of Statistics (NBS) on Saturday, stood at 49.5 in August, down from a reading of 49.7 in July, and below analysts’ expectations.
7. India’s economic growth decelerated sharply to a six-year low in the most recent quarter, heightening concerns about the head winds facing one of the world’s largest economies. India’s gross domestic product expanded by 5 percent year-on-year in the three months that ended in June, a poor performance for an economy that has regularly notched growth above 7 percent in recent years.
8. India on Friday announced that 10 state-run banks will be merged into four "well-endowed" entities with a wide domestic network and global reach. Finance Minister Nirmala Sitharaman made the announcement at a press conference after meeting the chiefs of the state-backed banks.
9. As India looks to resolve the issue of Kashmir's status, it finds itself facing another problem as Pakistan-backed separatists renew calls for creation of an independent Sikh state. A number of India's Sikhs -- a minority religious group concentrated in the northern state of Punjab -- have for years been advocating for creation of the independent state of Khalistan on the border with Pakistan.
10. The Taliban have launched a "massive" new attack on one of Afghanistan’s largest cities, Kunduz, the government said on Saturday, even as the insurgent group continued negotiations with the US on ending America’s longest war. The militants, who have demanded that all foreign forces leave the country, now control or hold sway over roughly half of the country and are at their strongest since their 2001 defeat by a US-led invasion.
11. Police fired water cannons and tear gas to disperse protesters besieging the city’s government headquarters, as tens of thousands took to the streets in defiance of a police ban on antigovernment demonstrations. Violence flared in the Admiralty area late Saturday afternoon after crowds occupied major roads in processions that stretched for miles through the city. In other districts, people of all ages held umbrellas in drizzling rain, chanting for freedom as social unrest stretched into a 13th weekend.
12. A recent remark by U.S. Secretary of State Mike Pompeo about “North Korea’s rogue behavior” will make talks with the United States more difficult, the North’s KCNA news agency on Saturday quoted its vice foreign minister, Choe Son Hui, as saying. “We recognized that North Korea’s rogue behavior could not be ignored,” Pompeo said on Tuesday, while speaking at the American Legion National Convention in the state of Indiana. Pompeo’s comment was unreasonable and provocative, Choe said, according to the news agency.
13. Meanwhile, the euro fell to a two-year low yesterday as some investors bet that lackluster economic data would force the European Central Bank to further ease monetary policy next month. The common currency was recently down 0.6% at $1.0991, after hitting its lowest level since May 2017 earlier in the session. The ICE Dollar Index was up 0.3% to 98.80, paring earlier gains that had put it at a 27-month high.
14. The EU wants to extend Article 50 to avoid a no deal Brexit, it has emerged, as Eurosceptic MPs said Brussels was starting to crack under the pressure applied by Boris Johnson. Emmanuel Macron was said to be ready to “withdraw” the October 31 deadline, and the European Commission said another extension was “obviously a possibility” in a clear softening of its position ahead of intensive negotiations next week.
15. Tomorrow, the states of Saxony and Brandenburg will vote in highly anticipated parliamentary elections. The results will not only determine their respective regional governments for the next five years. They could also have repercussions at the national level, and mark a turning point in the post-reunification political history of these two former East German states. Die Welt explains why tomorrow's vote is important.
16. Italy’s anti-establishment Five Star said it would only enter a coalition with the centre-left Democratic party if it accepted new policy demands, dimming hopes of a swift deal on a new government. Luigi Di Maio, Five Star leader, said he would opt instead for fresh elections if the PD refused to accept a new 20-point policy program. Mr Di Maio issued his ultimatum to Giuseppe Conte, prime minister, who is trying to assemble a new, more pro-European government in Rome that would lock the far-right League out of power.
17. Matteo Salvini, until recently, had been this continent’s fastest-rising politician. He was the torchbearer for Trump-style nationalism in Western Europe. His own party, with the pledge to put “Italians first,” was triumphing in parts of the country long dominated by the left. Mr. Salvini believed his time in power was only beginning. “We’ll govern for the next 30 years,” he had said. Now, Salvini appears to have prematurely squandered his hold on the government — while jeopardizing the momentum that had helped turn Italy into Western Europe’s far-right stronghold. (Just for the record, News Items all-but-completely disagrees with this analysis and would urge you all to read Ambrose Evans-Pritchard's analysis here).
18. President Trump wants Americans to understand that the economy is doing great, thanks to him. But if in fact the economy sours, then it is someone else’s fault. Yesterday, The president’s search for economic villains comes amid signs of a slowdown, exacerbated by uncertainty from his showdown with China over the future of the relationship between the two largest economies in the world. Consumer confidence, which increased significantly on Mr. Trump’s watch, fell by 8.6 percent in August, its largest monthly decline since 2012 when the government was on the edge of a so-called fiscal cliff. The University of Michigan, which measures confidence, attributed it to the trade war, reporting that one in three consumers cited Mr. Trump’s tariffs without being prompted.
19. Drivers hitting the road this Labor Day weekend will enjoy the cheapest gasoline prices in three years, a boon to consumers who have remained confident, while fears of recession grip much of Wall Street. Price-tracking firm GasBuddy predicts the national average for a regular gallon of gas will be $2.55 a gallon on Labor Day, down nearly 30 cents from last year and the lowest price on the holiday since 2016. The national average has fallen for six straight weeks to $2.58.
20. U.S. households ramped up their spending in July, providing reassurance that the economy’s decade-long expansion continued to roll despite slowing factory activity and global growth. Personal-consumption expenditures, a measure of household spending, increased a seasonally adjusted 0.6% in July from June, a pickup from the previous two months, the Commerce Department said Friday, continuing a solid performance by the economy’s main driving force.
21. A decline in economic activity in the U.S. Midwest, apparent in a little-noticed report on Friday from the Chicago Federal Reserve Bank, adds to evidence of slowing growth in factory-heavy corners of the country key to next year’s U.S. presidential election. President Trump won the White House three years ago in large part by carrying three swing states that will be critical in the November 2020 election: Wisconsin, Michigan and Pennsylvania. But as he has ramped up tariffs on Chinese imports in an effort to force the world’s second-biggest economy to sign a trade deal more beneficial to the United States, he has added to a global slowdown that is crimping demand for U.S. exports. And swing states are feeling the effects.
22. A Tokyo listing by Saudi Arabian Oil Co. would boost Japan’s effort to re-establish itself as a global financial center, but it could also highlight areas in which the country has laxer disclosure standards. The number of foreign companies listed in Tokyo has fallen to five from more than 100 in the early 1990s as the nation’s economic clout has declined. Tokyo Gov. Yuriko Koike has been trying to get Tokyo back on a par with Asian financial hubs such as Singapore and Shanghai.
23. China’s desire to launch the world’s first government-backed digital currency could see the possible rival to Facebook’s Libra be launched in time for November’s Singles’ Day online shopping festival despite a Chinese media report playing down the timing as “inaccurate speculation”. Several central bank officials have publicly spoken out over the past several weeks about the need for China to launch its own digital currency since Facebook unveiled its plans for Libra, and the People’s Bank of China (PBOC) appear to be making rapid progress ahead of an expected launch.
24. Facebook Inc.’s Libra digital currency will be a focus for antitrust and financial regulators in the near future, EU Competition Commissioner Margrethe Vestager said, confirming an early-stage probe into how the new payment system will work. “From both a competition and a financial stability perspective, Libra will have our interest,” Vestager told reporters in Copenhagen.
25. Janan Ganesh on the agony of returning to work in September: "...the defining thing about work is not its exact content. It is the fact that you have to do it."
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