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The Bank of England’s Monetary Policy Committee (MPC) appears to have delivered a key message: rates will have to rise. Yet UK interest rate markets are pricing a 20% chance of a 25bp rate cut by January 2020, and an
Over the past week, we’ve seen a raft of US activity data for May. Manufacturing PMIs surveys (ISM and Markit) were weak, and so was labour market data. Services PMI data were mixed (ISM up, Markit down). Small business sentiment
A combination of disappointing US jobs and inflation data, dovish Fed comments, and concerns over trade deals has brought Fed rate cut expectations into upcoming FOMC meetings. The next meeting in June has a small probability of rate cut priced-in,
US RECESSION WATCH: Three good articles. One is an excellent summary of opinions on whether an inverted yield curve signals a coming recession. Another called how to spot a recession uses an unemployment signal to arrive at a 10% probability of recession next year. Finally, in this time might not be different argues that three factors that precede recessions are already in place (inverted yield curve, full employment, and long expansion).
U.S. Demographics: Largest 5-year cohorts, and Ten most Common Ages in 2018 I didn’t realise this, but the prime working age population is now increasing. In terms of cohorts, in 2010, the largest age grouping was 45-49 years old, while today it is 25 to 29 years old. This should be positive for US economic growth and housing.
S&P 500 Earnings – Which Sector’s Growth Rates Have Seen Less Downward Pressure for Q2 ’19 S&P500 companies’ earnings growth is expected to be 12% in 2020 and that forecast hasn’t changed for over four months despite the escalation in the US-China trade war. The sectors which have had the most resilient growth expectations have been energy, financials, healthcare, communications, and utilities.
(more…)China to boost social credit system with new market regulatory measures China’s social credit system which amongst other things rewards and penalises acts of good or bad faith will now be extended to the business sector. Very Orwellian.
TRADE WAR: China’s People’s Daily: Op-ed-Tariff hikes are ‘bricks’ escalating tensions rather than ‘ladders’ leading to solution. It opens with a Milton Friedman(!) quote: “The most effective protection to a consumer is free competition at home and free trade throughout the world,” and goes on to attack the use of tariffs in trade policy. Worth reading with the US response this tougher China stance U.S. Trade Representative and the U.S. Department of Treasury respond to the “White Paper” issued by China
Inside Huawei’s secretive plans to develop an operating system to rival Google’s Android The OS issue took an extra urgency after the US government in mid-May placed Huawei and its affiliates on a trade blacklist. One of the biggest technical challenges for the Huawei OS under development has been its compatibility with Android.
(more…)I’ve paired these podcasts to provide context for the recent HK protests. The first, Why Hong Kong Is Still Protesting (The Daily, 23 min), runs through the events that led to approximately one in seven Hong Kong residents protesting in the streets this past weekend. It started a year ago, with an incident in Taiwan that led to the need for an extradition treaty between HK and Taiwan. This, in turn, resulted in a wholesale review of HK’s extradition treaties with all countries including China. Hong Kong residents see an extradition treaty with China as a loss of independence and have reacted with protests.
The parallels with the Tiananmen Square protests in 1989 bring us to the second podcast, which features an interview with one of the now exiled student leaders of the Tiananmen protests: A student leader 30 years after Tiananmen: Wu’er Kaixi reflects on the movement (Sinica, 1hr 22 min). The first hour of the podcast describes the lead up to the protests. One point stands out in particular: the Chinese student protesters took much inspiration from other democratic movements of the time, such as Poland’s Solidarity movement and Gorbachev’s perestroika and glasnost reforms. One difference today, then, is that the international trend is if anything towards more authoritarianism, rather than liberal democracy, so there may be less international inspiration to sustain the latest protests.
(more…)Freshly Squeezed Working Papers
Give Credit Where Credit Is Due: What Explains Corporate Bond Returns? AQR paper finds finds that options markets explain a great deal of credit returns. Two features of corporate bonds
The Risk of Returning to the Zero Lower Bound San Fran Fed writes “that there currently appears to be a low risk of the economy returning to the zero lower bound
Negative interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area ECB finds that negative rates actually do promote loan growth contrary to
