Monday, August 19, 2019

Reuters News - Trump 'not ready' for China trade deal, dismisses recession fears

WASHINGTON (Reuters) - U.S. President Donald Trump and top White House officials dismissed concerns that economic growth may be faltering, saying on Sunday they saw little risk of recession despite a volatile week on global bond markets, and insisting their trade war with China was doing no damage to the United States.

“We’re doing tremendously well, our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money,” Trump said on Sunday.
But he was less optimistic than his aides on striking a trade deal with China, saying that while he believed China was ready to come to an agreement, “I’m not ready to make a deal yet.”
He hinted that the White House would like to see Beijing resolve ongoing protests in Hong Kong first.
“I would like to see Hong Kong worked out in a very humanitarian fashion,” Trump said. “I think it would be very good for the trade deal.”
White House economic adviser Larry Kudlow said trade deputies from the two countries would speak within 10 days and “if those deputies’ meetings pan out... we are planning to have China come to the USA” to advance negotiations over ending a trade battle that has emerged as a potential risk to global economic growth.
Even with the talks stalled for now and the threat of greater tariffs and other trade restrictions hanging over the world economy, Kudlow said on “Fox News Sunday” the United States remained “in pretty good shape.”
“There is no recession in sight,” Kudlow said. “Consumers are working. Their wages are rising. They are spending and they are saving.”
Their comments follow a week in which concerns about a possible U.S. recession weighed on financial markets and seemed to put administration officials on edge about whether the economy would hold up through the 2020 presidential election campaign. Democrats on Sunday argued Trump’s trade policies were posing an acute, short-term risk.
U.S. stock markets tanked last week on recession fears with all three major U.S. indexes closing down about 3% on Wednesday, paring their losses by Friday due to expectations the European Central Bank might cut rates.
The U.S. Federal Reserve and 19 other central banks have already loosened monetary policy in what Fitch Ratings last week described as the largest shift since the 2009 recession.
Markets are expecting more cuts to come. For a brief time last week, bond investors demanded a higher interest rate on 2-year Treasury bonds than for 10-year Treasury bonds, a potential signal of lost faith in near-term economic growth.
White House trade adviser Peter Navarro on Sunday dismissed the idea that last week’s market volatility was a warning sign, saying “good” economic dynamics were encouraging investors to move money to the United States.
“We have the strongest economy in the world and money is coming here for our stock market. It’s also coming here to chase yield in our bond markets,” Navarro told ABC’s “This Week.”
For bond markets, the sort of movement Navarro described is often driven by trouble - in this case the possibility that the trade battle with China is lasting far longer than expected and becoming disruptive to business investment and growth.
The U.S. economy does continue to grow and add jobs each month. Retail sales in July jumped a stronger-than-expected 0.7%, the government reported last week, and Kudlow said that number showed that the main prop of the U.S. economy was intact.
But manufacturing growth has slowed and lagging business investment has become a drag.
A slowdown would be bad news for Trump, who is building his 2020 bid for a second term around the economy’s performance. He told voters at a rally last week they had “no choice” but to vote for him to preserve their jobs and investments.
The president and his advisers have repeatedly accused the Fed of undermining the administration’s economic policies. On Sunday, Kudlow again pointed the finger at the central bank, describing rate hikes through 2017 and 2018 as “very severe monetary restraint.”
The Fed hiked rates seven times over those two years as part of a plan to restore normal monetary policy following emergency steps taken to battle the 2007-2009 global financial crisis and recession.
Even with those steps, the Fed’s target interest rate has remained well below historic norms, and policymakers have started cutting rates in response to growing global risks.
Democratic presidential candidates on Sunday joined the many economic analysts who have said the administration’s sometimes erratic policies on trade - at one point threatening tariffs on Mexico over immigration issues - are to blame for increased uncertainty, disappointing business investment and market volatility.
“I’m afraid that this president is driving the global economy and our economy into recession,” Democratic candidate Beto O’Rourke said on NBC’s “Meet the Press.”
Speaking to CNN’s “State of the Union” on Sunday, Democratic candidate Pete Buttigieg criticized the administration for failing to deliver a deal with China.
“There is clearly no strategy for dealing with the trade war in a way that will lead to results for American farmers, or American consumers,” he said.
Reporting by Howard Schneider; additional reporting by Humeyra Pamuk and Ginger Gibson; editing by Michelle Price, Lisa Shumaker and Rosalba O'Brien

Friday, August 16, 2019

BBC News - Germany steels itself to face recession threat

German steelworker at ThyssenKrupp works in DuisburgImage copyrightEPA
Germany, Europe's biggest economy, could be heading for a recession.
Data from the German statistics office on Wednesday showed the economy shrank by 0.1% between April and June.
That takes the annual growth rate down to 0.4%. Germany narrowly avoided a recession last year.
But this time, there are predictions the economy will continue to contract for another three-month period.
The main driver of the economic weakness appears to be rising global trade tensions.
Marcel Fratzscher, the president of the research institute DIW Berlin, told the BBC that he believes Germany's first recession since 2013 is probably already under way.
"Most likely we will see another quarter of negative growth, and that's by definition a technical recession," he says.
He forecast the economy to shrink by 0.1% between July and September.
"It's very mild, but also at the same time, not a very strong performance," he said.
germany gdp

Exports slowing

Germany has traditionally relied on selling its manufactured products, such as cars, abroad.
That is a strength in good times, but appears to be a drag during the current trade tensions.
Data last week suggested that momentum in Germany's exports slowed in the first half of the year and reversed in June.
Other figures showed there had been a 1.5% fall in industrial output in May.
Volkswagen cars for export wait for shipping at the port in Emden, GermanyImage copyrightEPA
Image captionGermany is sending fewer cars abroad
"Industrial production is suffering from a severe setback of less global demand and increasing international trade problems," says Klaus Deutsch, the head of economic and industrial policy at the BDI, a business lobby organisation with one million members.
It predicts a recession may not happen this year, but would be hard to avoid next year if the current global turmoil continues.
Companies that supply Germany's carmakers, including Continental and Bosch, have warned about the impact of the worldwide slowdown on sales of cars.
"Most companies don't yet have to lay off workers or make drastic changes, but the mood has been softening strongly, and if things continue deteriorating, many companies will have to cut back production, perhaps move to temporary work schemes and reduce output even further," Mr Deutsch told the BBC.

Trump tariffs

The current situation has the potential to get much worse for German carmakers.
The US has threatened to impose extra tariffs on European-made cars, something that would hit the likes of BMW and Mercedes-Benz particularly hard.
US President Donald Trump recently joked about the potential for tariffs at a media event at the White House.
But many in Germany don't see the funny side, particularly as US national security has been cited as part of the justification for any new border taxes.
Chancellor Angela Merkel has said the threat to designate European carmakers as a security threat came as "a bit of a shock".
But her government believes the German economy will grow slightly this year, and does not think further stimulus is necessary.
And economy Minister Peter Altmaier had said the country was not yet in a recession and could avoid one if it took the right measures.
carsImage copyrightGETTY IMAGES
Some Germany-based economists have said they expect the country to escape a recession this year, pointing to the near-record low unemployment rate and strength of domestic-focused businesses.
But with a potential recession looming, the government has been called on to spend its way back to growth.
The German government had a fiscal surplus of €58bn (£53.6bn) in 2018, so it has plenty of cash to spend, should it choose.
"It makes sense for the government to spend more," says DIW Berlin's Mr Fratzscher.
"It needs to act now in order to prevent a deeper recession or protracted slowdown in the economy, rather than wait for that to happen," he says.
The BDI business lobby organisation wants new tax incentives and investments in climate change mitigation measures and new digital technologies.
On Tuesday, Chancellor Merkel said she did not see any need for a fiscal stimulus package to counter the effects of a slowing economy, but said Berlin would continue to pursue high levels of public investment

Thursday, August 15, 2019

Reuters News - Markets register a shock, but is Trump right to blame the Fed?

WASHINGTON (Reuters) - It takes a lot to kill an economic expansion, typically requiring a major shock to bring growth to a halt and trigger a U.S. recession.

This week investors signaled that moment may have arrived, and one big question is whether that shock has come from President Donald Trump’s trade war or a mistake by policymakers at the U.S. Federal Reserve.
As bond markets flashed concern about recession on Wednesday and major stock indices cratered, Trump put the blame squarely on the Fed for continuing to raise rates through the end of last year. Even Trump foe and New York Times economics columnist Paul Krugman dinged the Fed for “a clear mistake.”
In raising interest rates four times last year “the Federal Reserve acted far too quickly, and now is very, very late,” in reversing itself and cutting borrowing costs only modestly so far, Trump tweeted. “Too bad, so much to gain on the upside!”
Earlier on Wednesday, White House trade adviser Peter Navarro told Fox Business Network the U.S. central bank should cut rates by half a percentage point “as soon as possible,” an action he claimed would lead “to 30,000 on the Dow.”
A cut of that magnitude would typically be associated with serious economic risk, not an economy with record low unemployment and ongoing growth.
As it stood, major U.S. stock indices slumped by around 3% by Wednesday’s close with the blue chip Dow Jones Industrial Average suffering its largest percentage loss of the year. Bond investors pushed the yield on the 30-year Treasury bond to a record low.
Causing even more concern: The yield on the 2-year Treasury note briefly went above the yield on the 10-year Treasury note, the sort of “inversion” that, when it proves durable, has preceded prior U.S. recessions.
Trump himself took note of the development, blasting the Fed chair he appointed - Jerome Powell - as “clueless” in a tweet citing the “CRAZY INVERTED YIELD CURVE.”

FROM AS GOOD AS IT GETS TO GLOOMY

It was perhaps the most dramatic bit of evidence yet of just how the landscape for the Fed has changed over the past few months, from one that Powell deemed “remarkably positive” as of last October, to one of rising risks for the United States’ record-setting, decade-long expansion.
As of last fall, the Fed thought the economy, fueled by the Trump administration’s massive $1.5 trillion tax cut package and spending plans, would grow strongly enough to justify steadily higher rates.
At that point the threat of a recession seemed distant unless some sort of outside event intervened to throw the economy off course - something like the collapse of the dot-com stock market bubble ahead of the brief 2001 recession, or the implosion of the U.S. housing and credit markets ahead of the more serious 2007-2009 Great Recession.
Yet, as Trump’s trade rhetoric and his imposition of tariffs on trading partners ratcheted up this year, particularly since May, investors have acted as if a breaking point had been reached.
Global trade flows have dropped. Economic growth in Germany, a bellwether economy of sorts given its reliance on exports, contracted in the second quarter. Data also showed industrial output in China fell to more than a 17-year-low in July. Indices of uncertainty also have spiked.
If Fed policy suddenly seemed out of step, it was perhaps inevitable given the difficulty of keeping up with Trump’s whipsaw approach to trade policy, and the growing sense that the fallout may be deeper and longer lasting than expected.
“The challenge is that Trump’s trade policy has proven so erratic that you cannot relieve the sense of uncertainty,” as firms adjust to what may be a years-long rearrangement of global supply chains and cost structures, said Tim Duy, an economics professor at the University of Oregon. “So the question becomes is policy going to be easing enough ... or remain so tight that the economy remains vulnerable?”
Investors in federal funds futures contracts are currently pricing in a quarter-point rate cut at each of the Fed’s remaining three policy meetings in 2019. That would take the benchmark fed funds rate to a range of between 1.25% and 1.50%.
Along with the rate cut at the last Fed meeting in July, it would also mean the U.S. central bank will have used up almost half the rate-cut “ammunition” assembled during a slow-moving, and ultimately truncated series of rate increases begun in 2015.
For Trump, who is hoping to make the economy a central part of his case for his 2020 re-election campaign, further rate cuts could not come fast enough. He has been berating the Fed for its rate increases for more than a year - since even before his trade rift with China morphed from being considered an economic annoyance to a larger and potentially durable risk.

AHEAD OF CURVE?

Compared to the prior two recessions, the Fed may actually be ahead of the curve.
In both the 2001 and 2007 downturns, the Fed raised rates even after the yield curve inverted and did not cut until just a few months before the start of recession about a year later.
In the current case, it signaled a policy shift in January, when it removed the expectation of further rate hikes from the table, and then cut rates two weeks before Wednesday’s yield curve inversion.
Whether that proves adequate is another matter.
In an interview scheduled to air on Fox Business Network on Friday, former Fed chief Janet Yellen said she felt the U.S. economy remained “strong enough” to avoid a downturn, but “the odds have clearly risen and they are higher than I’m frankly comfortable with.”
Reporting by Susan Heavey, Tim Ahmann and Howard Schneider; Editing by Chizu Nomiyama, Paul Simao

Wednesday, August 14, 2019

BBC News - German economy slips back into negative growth

carsImage copyrightGETTY IMAGES
Germany's economy shrank during the April-to-June period of this year.
A decline in exports dampened growth, according to official data, which comes amid concerns of a global slowdown.
Gross domestic product (GDP) fell by 0.1% compared with the previous quarter, according to the Federal Statistics Office.
That takes the annual growth rate down to 0.4%. Germany, Europe's largest economy, narrowly avoided a recession last year.
Early signs for the third quarter "look ominous", said Andrew Kenningham, chief Europe economist at Capital Economics. "Manufacturing business surveys for July were all gloomy.
"And while the services sector should continue to hold up better, there are some signs that the slump is spreading to the labour market."

Trade war woes

While the overall figures were negative, household and government expenditure increased, as did investment outside the construction sector.
Construction itself fell after an unusually good first three months, boosted by a mild winter.
Mario DraghiImage copyrightGETTY IMAGES
Image captionThe European Central Bank, led by Mario Draghi, may be tempted to cut rates or buy more bonds to stimulate the eurozone economy, which includes Germany
Presentational grey line

Analysis: Andrew Walker, economics correspondent

This is the downside of being an exporting powerhouse. When the international economic environment clouds over, you get rained on.
The German statistical office hasn't given a detailed breakdown, but they have confirmed that exports declined and did so by more than imports.
China is at the centre of the trade storms and it's also an important export market for Germany. So trade held the economy back, in contrast with consumer spending and investment in Germany which both rose.
The economy contracted back in the third quarter of last year, and the subsequent rebound was not all that powerful.
Looking ahead, one question is whether Germany will see another decline in the current quarter, which would make it a recession as the term is often defined.
Some recent surveys of business confidence have been decidedly downbeat so the "R" word is certainly a possibility.
That said, Germany could still avoid it, and even if not, the country would at least be going into recession with unemployment that is among the lowest in the world.
Presentational grey line
"The development of foreign trade slowed down economic growth because exports recorded a stronger quarter-on-quarter decrease than imports," the statistics office said.
The US-China trade war and the UK's departure from the EU, especially if it happens without a deal, are among factors affecting global economic confidence.
Last month, the International Monetary Fund cut its growth forecasts for the global economy for this year and next, citing US-China tariffs, US car tariffs and no-deal Brexit.
China's own economic slowdown has weakened demand for foreign goods. It is an important market for Germany, since it buys plenty of luxury cars.
Only the much larger economies of the US and China export more goods than Germany.
The results may make authorities consider more monetary stimulus, said Neil Wilson, chief market analyst for Markets.com.
Meanwhile, the European Central Bank has hinted it could cut interest rates to tackle a slowdown in the eurozone economy.
The ECB said last month that a weak manufacturing sector and uncertainty over Brexit and trade threatened to derail growth. It forecast rates at current or lower levels until mid-2020.

Tuesday, August 13, 2019

BBC News - Argentine peso and markets plunge after shock vote

trading boardImage copyrightEPA
Argentine stock markets and its currency have both plunged after conservative Argentine President Mauricio Macri suffered a shock defeat in primary elections on Sunday.
The peso fell 15% against the dollar on Monday after earlier plunging around 30% to a record low.
Some of the country's most traded stocks have also lost around half of their value in one day.
Mr Macri, in response, has pledged to "reverse" Sunday's election result.
At a news conference on Monday, the president also said that the drop suggested the market lacked confidence in an opposition governmen.
"This [market meltdown] is just a small demonstration of what can happen," said Mr Macri.
"We have much to do still. Every election is a message and we understood it."
At end of trading on Monday, Argentina's main Merval index closed down 31% as some of the country's largest companies saw their market values plummet.
Cement producer Loma Negra was among those worst affected, with its share price down around 55%. Financial services firm Galicia Financial also saw a 46% drop in its stock value.
The embattled president was defeated by his centre-left rival, Alberto Fernández, who is now seen as the frontrunner for October's presidential race.
Cristina Fernández de Kirchner and AlbertoImage copyrightAFP
Image captionAlberto Fernández's running mate is ex-President Cristina Fernández
His running mate is former President Cristina Fernández de Kirchner, who presided over an administration remembered for a high degree of protectionism and heavy state intervention in the economy.

Analysis by Daniel Gallas, BBC South America Business Correspondent
Argentina is a country that has suffered with all sorts of economic problems that are taught in textbooks.
But even by its standards, this market meltdown is unprecedented.
In just two hours, a third of the Merval index (which accounts for the most traded stocks in the country) was wiped out in value.
Investors are now pushing the "sell" button, as many believe it will be impossible for President Mauricio Macri to win the upcoming election in October.
If he loses, this will be the end of a pro-business agenda to save Argentina's economy that has been implemented since Mr Macri came to power in 2015, which includes IMF loans, austerity measures and the end of capital controls.
Sunday's primaries were seen as vindication for "Kirchnerismo" which have for years denounced Mr Macri's plan as ineffective. The country is in recession and still suffering with inflation and poverty.
There are still two more months to go until the election - but few believe there will be surprises as big as this one coming up again.

Edward Glossop, from the London-based consultancy Capital Economics, said Mr Macri's government could pull out all the stops to try to shore up popular support.
This could include easing budget curbs imposed as part of Argentina's agreement with the International Monetary Fund.
"An outright loosening of the purse strings is possible. The IMF would probably turn a blind eye to this, since it is in its interest for President Macri to secure re-election," he said, but added: "We doubt that these efforts would be enough to change voter perception."
President Macri was elected in 2015 on promises to boost Argentina's economy with a sweep of liberal economic reforms.
But his promised recovery has yet to materialise - Argentina is currently in a recession and posted 22% inflation for the first half of the year, one of the highest rates globally.
More than a third of the country's population is currently living in poverty, according to official figures.

Monday, August 12, 2019

Reuters News - Fed remains a target as economy falls short of Trump's ambitious goals

WASHINGTON (Reuters) - It has become a jarring and frequent contradiction. President Donald Trump blames the Federal Reserve for putting the U.S. economy at risk while data shows an economy in “reasonably good” shape, as the head of the central bank recently said.
But behind that confusing dance between a norm-breaking Republican president and a stick-to-its-knitting Fed lies a dilemma for Trump.
“Reasonably good” is not what Trump promised to deliver during his 2016 campaign, and at this point he heads into a reelection year short of the key economic goals he set and worried a recession could undermine his bid for a second term.
Growth is ebbing and well below the 3% annual rate he said his administration would hit; the trade deficit has widened and there is no sign of the “easy” victory he said would come in a trade war with China; far from the surge in investment he promised would follow a corporate tax cut, business capital spending of late has been a drag on growth overall.
Each month there are more jobs. But that has been true for nearly nine years, and as on many fronts the best days of “Trumponomics” may be in the past as the economy’s performance reverts to an Obama-era trend of around 2% annual growth.
“He is so focused on the Fed because in terms of avoiding a recession that is truly in his eyes his biggest obstacle,” to reelection, said a source in regular communication with the White House, explaining that Trump wants to take no chances, even if the risk of a downturn is low.
It’s in that context that Trump scorns a central bank whose longer-term approach to policy has clashed with his more immediate interests - the same tension apparent in other battles between the president and government agencies with their own institutional powers or culture.
In the Fed’s case, while its chairman and Washington-based governors are appointed by the president, its responsibility is to a “mandate” established by Congress.
The Fed’s goals of “maximum employment, stable prices, and moderate long-term interest rates” are distinct from, and sometimes in conflict with, the economic or political priorities of the party in power, whether it’s maximizing annual growth, gaining leverage in a trade negotiation or, gaining economic momentum in an election year with interest rates lower than the data would warrant.
Other things equal, lower interest rates can boost economic activity by encouraging households and businesses to borrow, spend and invest, but can also lead to financial excesses as happened in the early 2000s in the U.S. mortgage market, and - less of a concern today - inflation.
Managing those mandated goals, Fed officials note, can require tradeoffs, involves looking further ahead than can be forecast with certainty, and always includes a judgment about whether the lower unemployment and other benefits that might come with easier monetary policy are worth the risks involved.
Trump’s demands that the Fed stimulate the economy, by contrast, have covered a gamut of immediate needs, and moved well beyond convention to suggest, for example, that the Fed restart crisis-era asset purchases at a time of historically low unemployment.
One day it’s to support a wobbly stock market. The next to boost growth, and then later to gain an upper hand in trade talks through a cheaper dollar, as Trump demanded twice last week when he said the U.S. central bank should not allow the rate cuts and currency moves of other nations to offset the impact of tariffs he has imposed.
When rates remained low through President Barack Obama’s reelection campaign and second term, Trump said the Fed had “become very political.” Advisers familiar with his thinking say he now expects the same treatment, even if the economy is in a different place.

RATE CUT ‘INSURANCE’

It’s debatable whether the Fed-bashing has had much influence.
The source close to the administration said Trump believes his “relentless” public criticism of Fed Chairman Jerome Powell “has gotten him to play ball.” The central bank cut rates by a quarter of a percentage point at its July 30-31 policy meeting.
Fed officials see it differently.
Powell, the private equity lawyer handpicked by Trump to head the Fed only to be blasted later by the president as an incompetent “nobody,” has emphasized that he was “not going to make mistakes of character or integrity” - in other words, that he would not take Trump’s election prospects into consideration in setting policy.
The Fed has in fact steadily shifted gears since late last year but for a variety of reasons, including a sense that the fallout from trade wars may be greater than expected, and that its own estimate of the appropriate interest rate for the current state of the U.S. economy was too high.
Perhaps above all was evidence that the faster growth produced by the $1.5 trillion tax cut package passed in late 2017 and higher federal government spending in 2018 was fading quicker than expected.
Early last year “we were looking for growth above trend and continued improvement in the unemployment rate,” Chicago Fed President Charles Evans said last week. By later in the year “we began to wonder if things were playing out in a softer fashion ... The tax bill’s influence on business fixed investment was harder to see, it was sort of waning ... Trade negotiations were taking place with a brinkmanship style and that led to more uncertainty.”
In response, the Fed first shelved its plans to steadily raise rates this year. That decision came on the heels of four rate increases in 2018.
At the most recent policy meeting, the Fed’s rate-setting committee decided to go even further by cutting the central bank’s benchmark overnight lending rate.
The move was, arguably, a response to Trump - but to his actions, not his direct demands. In May, the president unnerved investors by threatening to impose tariffs on Mexico unless it curbed the flow of migrants heading north into the United States.
Although a deal was reached to avert the tariffs, the linkage of trade policy to a largely non-economic goal resonated deeply among Fed officials, who became convinced they needed some rate cut “insurance” to protect the U.S. economic expansion from an increasingly uncertain global environment.
But if the rate cut raised questions about whether the central bank was now tethered to Trump’s tweets - destined to consider rate cuts when any threatened tariffs sent markets into a tailspin - Fed policymakers last week tried to put some distance between themselves and the Oval Office.
From here on, said St. Louis Fed President James Bullard, among the stronger advocates for lower rates, “tit-for-tat” trade actions wouldn’t warrant Fed action.
Although traders are expecting the Fed to cut rates two more times this year, and some bond pricing may reflect a rising risk of a recession, Fed officials feel a downturn is unlikely and that they have matters in hand.
“It certainly became clear to me with the Mexico situation ... that trade policy uncertainty is going to be high. It is going to be high into the foreseeable future,” Bullard said. “We’ve adjusted for the ratcheting up ... Let’s wait and see how the economy responds to that.”
Reporting by Howard Schneider and Ginger Gibson; Editing by Paul Simao