Top Economic News

 

The Fed pivots to caution.
China's listening post in Argentina?
Europe launches trade post with Iran.
Russia stops complying with the 1987 agreement on intermediate range nuclear weapons.
The EU Parliament recognizes Guaido as the Venezuelan interim President.
US Sanctions against Venezuela's state oil company touch Russian Oil Company Rosneft.
The forces that could throw Venezuela into chaos.
How would Elizabeth Warren's tax on the rich work?
Tesla's CFO resigns again.
China's railgun...how does it work?
The Eurozone economy is limping along.

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Powell to stress patience.
The US and China in a critical round of trade talks.
China will rush through a new foreign investment law that will formally ban forced transfers.
The UK goes back to the EU to solve the hard border issue.
Venezuela ships out 20 tons of gold to Russia.
Italy riding the storm out.
Argentina's crisi is great for steak lovers but bad for farmers.
Iraq's massive budget fails to address reform.

Click here to download a pdf of this article, Missile.pdf
 
 

Tesla needs a 21% rally in the next few weeks to dodge a bond payout.
Hint to Maduro: 5000 troops to Columbia.
Russia vows full support for Maduro.
​Angry creditors prowl the Carribean for Venezuela oil to seize.
May will go back to the EU to sharpen up the Brexit agreement.
There is a bug in facetime.
Criminal charges on Huawei technologies have been announced.
Iran rejects talks on missiles.
Mueller probe is close to being completed.

Click here to download a pdf of this article, Missile.pdf
 
 

US treasury lifts sanctions on 3 Deripaska companies.
Another day another 1T in new debt for the US to raise.
Venezuela near the tipping point.
Germany moving quickly to move ahead on implementing coal exit.
Not so fast on the end game with Libor.
China can no longer rely on real estate for growth.
Chinese chipmaker Fujian Jinhua, sanctioned by the US will stop production by March.
S&P global has gained approval in China to set up a domestic bond rating business.

Click here to download a pdf of this article, Missile.pdf
 
 

Shutdown talks continue as Congress is forced to work.
Hedge Fund Billionaire Bill Ackman tweeted shutdowns would not occur if members of Congress went unpaid.
Dear Mr. Ackman, about 40% of those in congress are millionaires and can wait it out.  The others most likely have some campaign funds they can lean on or can get a short term loan.  You are kind of out of touch brah
You need a constitutional amendment.
Will the Fed stop the run off? No
Chinese Ministers will be in the US on the 28th.  They meet with their US counterparts on the 31st.  Coming early indicates they are preparing for hard negotiations as they are acclimating to the time change...​
Soros says China's Xi is the most dangerous opponent of an open society.
Warren has proposed a wealth tax.
In Europe, markets are now pricing in a later start to interest rate increases.
German energy regulator to shield power users from coal exit costs.
How do you keep the army on your side in Venezuela?  Let them control the ports, mining and oil service concessions.

 

Click here to download a pdf of this article, Missile.pdf
 
 

Worst government standoff ever...
Senate showing it still has a pulse will vote on 2 deals already dead.
Venezuela has 2 Presidents but only one controls the military.
German manufacturing shrank for the first time in 4 years.
Surprisingly, May's Brexit plan that was defeated is the one most favored.
No no-deal Brexit, no no-stay Airbus
ECB keeps rates unchanged but, will continue to re-invest QE debt as it matures.
Trade talks with China about the new world order.
Top US universities unplug from Chinese telecom manufacturer Huawei.
China has rendered the Bing search engine inaccessible.
Chip results augur more tech gloom.
 

Click here to download a pdf of this article, Missile.pdf
 
 

Comparing the two plans the Senate will vote on.
The Fed is probing Deutsche Bank over suspicious movements of cash through Denmark's Danske Bank.
Venezuelans take to the street...again.
The UK Parliament moves closer to stopping a no deal brexit.
Why EU budget rules invite members to test limits.
China said to resisit US/EU talks on a global digital trade deal.
Russia is trying to defuse (pun intended) a nuclear dispute with the US
China's cyber watchdog deleted 7M pieces of online information and apps.
Russia said it is not in their best interests to start an oil price war with the US.
China will step up fiscal spending this year to support the economy.

Click here to download a pdf of this article, Missile.pdf
 
 

Will a deal to re-open the government get done?
Deal with China to end US Trade Surplus may be illegal?
Xi calls for political stability as economic risks mount.
Bridgewater's Dalio is afraid of the next economic downturn.
The Carlyle Group sees an end to the shutdown this week and a deal with China in the next several months.
Early data suggest no social security cost of living adjustment for 2020.
Opposition leader Corbyn pushes for a parliamnet vote on a new brexit referendum.
Germany's Merkel wants Britain and the EU divorce on good terms.
Assad blocks access to Damascus for EU envoys.
France and Germany signed a new treaty to update the 1963 post-war reconciliation accord.
 

Click here to download a pdf of this article, Missile.pdf
 
 

Tesla is under pressure to limit spending as it emerges from what Musk called the “most challenging” year in its history. While it succeeded in scaling up output of its Model 3, the company missed analysts’ production targets during the fourth quarter, and it’s had to cut prices to make up for the halving of a U.S. tax credit that’s acted as a buyers’ incentive. The credit is set to drop again in July before going away entirely at the end of the year.
https://www.bloomberg.com/news/articles/2019-01-18/tesla-to-cut-7-percent-of-jobs-to-lower-costs-for-model-3-ramp?srnd=premium
Elon Musk said he’ll cut Tesla Inc.’s workforce by 7 percent, or more than 3,000 jobs, warning that the “road ahead is very difficult” in making electric cars more affordable for the mass market.

 

“Goldman Sachs should understand the agony and the trauma suffered by the Malaysian people as a result of the 1MDB scandal,” Lim said in the administrative capital of Putrajaya. “An apology is just not sufficient. Not enough. There must be the necessary reparations and compensations.”
https://www.bloomberg.com/news/articles/2019-01-18/malaysia-may-discuss-dropping-goldman-s-charges-for-7-5-billion?srnd=premium 
An apology from Goldman Sachs Group Inc. doesn’t cut it for Malaysia, which said it may consider a discussion to absolve the bank of blame for its role in the 1MDB scandal for $7.5 billion.
The country filed criminal charges against the lender in December, the first for Goldman, and may discuss dropping those allegations if the bank pays the sum, Finance Minister Lim Guan Eng told reporters on Friday. Units of the bank were accused of making false statements in documents submitted to a local regulator in arranging $6.5 billion bond offers for troubled state fund 1MDB.

 

After a prolonged summer drought, the bustling traffic at one of the shallowest points on the Rhine ground to a halt for nearly a month late last year, choking off a critical transport artery. The impact damped Germany’s industrial machine, slowing economic growth in the third and fourth quarters.
https://www.bloomberg.com/news/articles/2019-01-18/europe-s-most-important-river-is-running-dry?srnd=premium 
“You can see the water levels are lower each year,” said Kilps, who added extra flotation equipment to the 150-ton boat during the stoppage to enable it to finally cross the river again. “It’s scary to watch the climate changing.”
With its source high in the Swiss Alps, the Rhine snakes 800 miles through the industrial zones of Switzerland, Germany and the Netherlands before emptying into the sea at Rotterdam, Europe’s busiest port. It serves as a key conduit for manufacturers such as Daimler AG, Robert Bosch GmbH and Bayer AG. 
Constraints on the Rhine cost BASF SE around 250 million euros ($285 million) by pushing the chemical maker to use more expensive transport options. In a recent newspaper interview, BASF Chief Executive Officer Martin Brudermueller called for major infrastructure investments such as locks and dams that can release water to ensure shipping lanes remain open. 
“The Alps are warming at an even faster rate as snow and ice melts,” Hagg said. “A warming climate means that incidents like the low river levels this summer are more likely to occur.”

 

It’s a grim week in global growth when the brighter take is that Italy’s more in stagnation than recession. Elsewhere, the tone is almost universally downbeat, with an OECD gauge affirming a deep sluggishness in the world’s major economies. Outside of sour trade data, China also saw its first car sales dip three decades, adding to a slowdown that has the government cutting taxes to nudge consumption. Germany barely dodged a recession at the end of 2018, and Mario Draghi sees the weakness across Europe even as he doesn’t want to apply the R-word. Economic policy uncertainty is at a record high globally, and the likes of Brexit and the U.S. government shutdown are adding dark clouds on the horizon. On a hopeful note, here’s a case for a pleasant surprise in the Philippines economy. And here’s a Bloomberg Economics analysis to help you read the tea leaves on global growth.
https://www.bloomberg.com/news/articles/2019-01-18/-goldilocks-economy-references-are-doomed-as-the-storms-set-in
Esther George won the week for monetary policy doves, as the famously hawkish regional Fed chief called for patience on raising interest rates. That marked just the latest sign that 2019 will be a year of caution at central banks, outlined in our quarterly decision guide. China’s quietly cutting borrowing costs while holding rates. The Bank of Japan probably will cut its inflation forecast on cheaper oil, and here’s a guide to its language on the yen. Brexit chaos could delay action at the Bank of England, and markets already were coming around to a more dovish view there. Turkey, Indonesia and South Africa all kept rates on hold. 

 

The index of small-cap stocks has gained more than 8 percent year to date — a far cry from its 2018 performance, when the index saw its worst annual loss since the financial crisis.
https://www.cnbc.com/2019/01/17/small-caps-russell-2000-best-start-to-year-since-1987.html
But the recent strength may just be a head fake. According to TradingAnalysis.com founder Todd Gordon and Strategic Wealth Partners’ Mark Tepper, investors should look elsewhere for value.
Smaller companies are typically more susceptible to economic cycles. They usually hold more debt than their large-cap peers, which means they are especially sensitive to factors like rising rates and wage inflation. 
Since Tepper believes we could be nearing the end of this historic bull run, he thinks Russell 2000 companies might have a tough road ahead. 
“Large caps typically outperform small caps late cycle,” he said. “When the economy slows and eventually contracts, those companies with high debt levels are going to get hit the hardest. Cash flow slows, rates go up, and that’s a recipe for trouble. Beyond that, wages are going up and that’s going to eat into margins.”

 

The growing likelihood of even a limited trade deal with the United States combined with a ramp-up in Chinese stimulus are jointly making some experts more optimistic about the 2019 prospects for the world’s second-largest economy.
https://www.cnbc.com/2019/01/18/china-economy-investors-increasingly-positive-amid-trade-war-signals.html
The atmosphere, however, has changed after a 90-day truce began early in December. Negotiations in Beijing earlier this month were mutually hailed and more talks are in store. And the U.S. is reportedly even considering lifting tariffs to reach a deal. That is all helping create a positive atmosphere for some kind of agreement. 
“The point is that both sides are now under a lot of pressure to get a deal done,” Stefan Hofer, chief investment strategist at LGT Bank in Hong Kong, told reporters on Tuesday, calling it “just something that has to happen.” 
LGT’s base forecast is for a deal by the middle of 2019, but Hofer said now is the time to get into Chinese markets. 
“I think it’s perfectly okay for investors to take on China exposure now in anticipation of that,” he said. 
Political risk consultancy Eurasia Group said in a Thursday note it sees “increasing signs of momentum towards some type of interim deal” within this year. In its view, that’ll be driven mostly by U.S. President Donald Trump’s wish to calm markets and have a win to take into next year’s expected re-election bid.

 

In a meeting of top advisers at the White House on Tuesday, the sources, who declined to be identified since the meeting was not public, said participants discussed aspects of a potential infrastructure plan and whether to include details of it in Trump’s State of the Union address scheduled for later this month.
https://www.reuters.com/article/us-trump-infrastructure-exclusive/exclusive-trump-meets-with-cabinet-officials-to-revive-infrastructure-push-sources-idUSKCN1PC1A5
About 20 officials took part in the more than hour-long meeting with Trump, including Vice President Mike Pence, White House senior adviser Ivanka Trump, acting Chief of Staff Mick Mulvaney, Treasury Secretary Steven Mnuchin and Transportation Secretary Elaine Chao, the sources said. 
They discussed how to incorporate into the plan funding for a next-generation wireless network, known as 5G, and potentially using the plan to modernize the U.S. air traffic control system, the people said. It followed a senior staff-level meeting on infrastructure earlier this month. 
A White House official confirmed the meeting took place but declined to comment further. 
The administration is considering a 13-year program but has not settled on key issues, including whether it will propose new ways to pay for increased spending.

 

U.S. oil production growth combined with a slowing global economy will put oil prices under downward pressure in 2019, challenging OPEC’s resolve to support the market with output cuts, the International Energy Agency said on Friday.
https://www.reuters.com/article/us-iea-oil/u-s-crude-gains-slowing-global-economy-challenge-oil-market-in-2019-iea-idUSKCN1PC0PV
The IEA, which coordinates the energy policies of industrial nations, said it was keeping its estimate of oil demand growth for this year unchanged at 1.4 million barrels per day, close to 2018 levels. 
“The impact of higher oil prices in 2018 is fading, which will help offset lower economic growth,” the Paris-based IEA said in its monthly report.

Click here to download a pdf of this article, Missile.pdf
 
 

Soybean shipments offloaded in China this year are down about 37 percent from the first two weeks of 2018, according to tanker-tracking firm ClipperData. To be sure, a couple weeks of data represent a small sample size, but the drop is very concerning in light of market conditions and trade tensions, says Ken Smithmier, director of research for agricultural markets at ClipperData.
https://www.cnbc.com/2019/01/16/china-soybean-imports-show-us-farmers-have-more-to-fear-than-trade-war.html
The ongoing U.S.-China trade dispute is now being complicated by an outbreak of African swine flu that threatens to suppress Chinese demand for soy meal, a common hog feed, for months to come. Along with soft auto sales and dismal manufacturing data, China’s remarkably weak soybean imports add more evidence of a slowdown in the world’s second-largest economy.

China, the world’s top soybean consumer, has turned to Brazil and other exporters for its supplies since slapping tariffs on U.S.-origin soybeans. The trade tension has weighed on prices, with soybeans losing more than $2.50 per bushel — roughly a quarter of their value — between the 2017 peak in March and the trough in September.

As Beijing and Washington endeavor to end the dispute, prices have rallied about 80 cents. That essentially signals to farmers that they shouldn’t cede too much acreage to other crops at the expense of soybeans, says Smithmier. However, he believes that’s a false signal and prices will soon correct.

 

(Can We Believe any Data coming out of OPEC?)
OPEC slashed production in December, delivering a bullish signal to the market one month before the producer group officially began a fresh round of output cuts.

Last month, OPEC struck a deal with Russia and nine other nations to keep 1.2 million barrels per day off the market starting in January. The so-called OPEC+ alliance is trying to prevent another price-crushing oil glut. The cost of crude collapsed in the final quarter of 2018, stirring memories of the punishing 2014-2016 downturn.

https://www.cnbc.com/2019/01/17/opec-oil-production-sinks-in-december-as-saudis-slash-output.html
The 14-nation OPEC got a jump on the agreement in December. Oil supplies from OPEC nations plunged by 751,000 barrels per day to nearly 31.6 million bpd, according to independent figures cited by OPEC in its monthly report.

Top oil exporter Saudi Arabia was the driving force behind the headline decline. The kingdom’s output plunged by 468,000 bpd to just over 10.5 million bpd last month, independent figures show. Data supplied directly by Riyadh show a 450,000 bpd drop to slightly more than 10.6 million bpd.

The pullback in OPEC production was deepened by supply disruptions in Libya and Iran.

Output in Libya fell by 172,000 bpd to 928,000 bpd in December, after a group of armed protesters and aggrieved workers took over the country’s largest oil field.

In Iran, production dropped by another 159,000 bpd to just under 2.8 million bpd, as the nation enters a second month under wide-ranging U.S. sanctions. The Islamic Republic has gone from being OPEC’s third biggest producer to its fifth largest, falling behind the United Arab Emirates and Kuwait in December.

Excluding Qatar, OPEC forecasts demand for the group’s oil will average 30.8 million bpd in 2019, about 900,000 bpd lower than last year. Demand for OPEC’s oil fell by about 1.2 million bpd last year, the group says.

 

“U.S. production growth, notably shale, is set to continue growing at a robust rate,” said Ehsan Khoman, head of Middle East and North Africa research and strategy at MUFG Bank Ltd. in Dubai. “This puts OPEC+ in a spot of bother, as the more they act to support prices, the more challenging it is to gain market share.”
https://www.bloomberg.com/news/articles/2019-01-16/oil-holds-above-52-as-top-suppliers-seen-committed-to-reduction
In America, crude production climbed by 200,000 barrels last week to 11.9 million barrels a day, the highest level in weekly figures compiled by the Energy Information Administration since 1983. While nationwide inventories dropped for a sixth time in seven weeks to the lowest since early November, stockpiles of gasoline and distillates rose by more than twice the amount estimated in a Bloomberg survey -- a troubling sign for crude demand.

 

 “A significant Chinese slowdown may already be unfolding,” Harvard University economics professor Kenneth Rogoff said in a recent commentary. A resumption of Sino-U.S trade talks has increased optimism among some analysts that Washington could agree to a further suspension of planned tariff hikes on Chinese goods, originally slated to take effect this month.

https://www.reuters.com/article/us-china-economy-poll/chinas-growth-set-to-slow-to-6-3-percent-in-2019-more-stimulus-seen-reuters-poll-idUSKCN1PB0AZ
China’s economic growth is expected to slow to 6.3 percent this year, which would be the weakest in 29 years, from an expected 6.6 percent in 2018, according to median forecast of 85 economists Reuters polled. The economy expanded 6.9 percent in 2017.
However, a comprehensive agreement to end the dispute is seen as unlikely by the negotiating deadline of early March, given the number of highly divisive and politically sensitive issues on the table.
Even if the two sides are able to reach a durable trade deal, analysts said it would offer only modest relief for China’s economy unless Beijing can rekindle weak domestic investment and demand.


“The PBOC is increasingly using liquidity management, instead of cuts to benchmark interest rates, to reduce interbank funding costs, guide bond yields lower and give banks a bigger profit margin so that they can offer cheaper loans to customers,” said Ding Shuang, chief economist of Greater China & North Asia at Standard Chartered Bank Ltd in Hong Kong.
And that won’t change soon, according to Ding, who interprets the comments made by a PBOC official on Tuesday as implying that any cut to interest rates isn’t likely in the short term.

https://www.bloomberg.com/news/articles/2019-01-16/china-quietly-cuts-borrowing-costs-while-keeping-rates-on-hold
The PBOC has taken a series of steps in recent weeks on that front:

  • Cut the amount of cash banks need to put aside as reserves
  • Expanded the eligibility of lenders for reserve ratios cuts
  • Lowered funding costs via a Targeted Medium-term Lending Facility
  • Halted funding provided via the pricier Medium-term Lending Facility

The strategy has been effective. The cost for banks to borrow from each other through 7-day repurchase agreements has been below the cost of the PBOC’s 7-day reverse repo for most of January, only picking up this week as companies withdrew money to pay taxes.

 

“They have every justification if they wish to not proceed in lockstep with their earlier increases but rather take a pause, and wait and see. It would not necessarily signal an end to rate increases, it would simply be a pause to evaluate.”
https://www.bloomberg.com/news/articles/2019-01-17/a-march-fed-pause-wouldn-t-mark-end-of-tightening-lockhart-says?srnd=premium
The Federal Reserve has plenty of reasons to pause its interest-rate increases in March to take stock of the economy, according to former Federal Reserve Bank of Atlanta President Dennis Lockhart.
“Monetary policy is about the real economy, not the financial economy. So the FOMC will do what it thinks is best for Main Street,” he said. “From time to time that may seem out of alignment with what markets are signaling. That’s very much the case today.”

Click here to download a pdf of this article, Missile.pdf