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Monday, August 19, 2019
Markets rally despite new Germany recession warning - business live - The Guardian
Markets rally despite new Germany recession warning - business live - The Guardian
Fears of a possible recession, sooner or later, are still swirling in America today.
It is bringing out Donald Trump’s tendency to pin the blame elsewhere (and in as many different places as possible).
Where economist and analysts see an interplay between Trump’s policies and the markets, Trump sees a conspiracy involving his own appointees, foreign lands and the US media, reports Maggie Haberman in the New York Times:
He has insisted that his own handpicked Federal Reserve chair, Jerome H Powell, is intentionally acting against him. He has said other countries, including allies, are working to hurt American economic interests. And he has accused the news media of trying to create a recession.
But any unbiased view has to include Trump’s ongoing trade war with China, which has dampened economic demand across the globe.
As the New York Times’ Neil Irwin tweets, this conflict could come back to roost next year - in time for the next presidential election.....
Neil Irwin(@Neil_Irwin)
There won't necessarily be a recession in 2020. But if there is, this is how it will happen.
In short: a capital spending downturn spurred by the trade war and global forces, exacerbated by high corporate debt and inadequate government response.https://t.co/yNGkJ9Qtkk
Back in the UK, there’s a move afoot to cut the stock market opening hours.
The plan could make it easier for working parents to hold down a job at the Stock Exchange.
Currently trading begins at 8am -- too early to combine with a nursery or breakfast club stop-off, and runs until 4.30pm.
Trimming the trading day, perhaps to a 9.30am kick-off and a 3.30pm final whistle, could help address the City’s gender imbalances. More here.
Germany isn’t the only economy facing problems, of course.
Start counting the number of countries at risk of recession, and you almost run out fingers.
Christopher Smart, chief global strategist at the Barings Investment Institute, says this has made investors worried.
“There’s a moment that sends a chill down the spine of any sailor when a rock suddenly appears, off wrong side of the bow. It doesn’t really matter whether the chart was wrong or the skipper missed a buoy—it’s undeniably a sign of trouble.
“That same cold jolt struck investors this month with the arrival of inverted yield curves, wilting inflation expectations and an array of other economic oddities that weren’t on their charts. But it would be wrong to panic now.
“The economic data have long showed these were rough waters. A deceleration was natural as we passed the mark for the longest U.S. expansion on record.
“All year long, signs that the next U.S. recession may arrive soon have multiplied. By one count, nine major economies are either already in recession or teetering on the brink, including Germany, the United Kingdom, Italy, South Korea and Brazil. Growth continues to slow in China as authorities reined in credit last year and trade tensions hit. Japan, which never drives global trends much anymore, is bracing for further headwinds from a sales tax hike.
Photograph: Barings Investment Institute
As the chart above shows, these fears have driven the amount of negative-yielding debt to record highs. But Smart argues that stimulus packages could keep the world economy on track....
Economically, cheaper money should help extend the U.S. consumer cycle and may even prop up corporate capital expenditures.
Politically, investors are learning to adjust to a world of trade turmoil, one where the uncertainty has yet to spread beyond bilateral flows between the U.S. and China. Meanwhile, stocks, which only recently touched record highs, now look relatively attractive on both dividend yields and valuation multiples.
Britain’s FTSE 100 is also hitting new highs for the day, up 93 points or 1.3% at 7210.
The prospect of fresh stimulus from central banks, and perhaps a fiscal boost from Berlin too, are pushing shares up/
Consumer-focused firms are doing well - with online grocer Ocado (+5%) and supermarket group Sainsbury (+4.6%) leading the FTSE 100 risers.
Mining stocks are also among the gainers, including Glencore (+3%) and Antofagasta (2.4%). They’ll benefit from higher commodity prices, if recession can be warded off.
The Bundesbank’s gloomy prognosis on Germany’s economic ills hasn’t dented today’s market rally. Quite the reverse.
The DAX share index of top German companies is now up 1.3%, or 150 points, at 11,712. That means it has recovered its heavy losses last week.
Weak business investment is also dragging Germany towards recession, the Bundesbank adds.
It fears that companies are holding back on buying new equipment and facilities, due to a slump in exports earlier this year. So, with construction investment also falling, and private consumption barely growing, the economy could keep shrinking this summer.
Today’s report warns:
Economic activity could also decline slightly in the current quarter..
An end to the downturn in industry is not yet apparent. This may also gradually affect some service sectors.
Brexit is partly to blame for Germany’s stumbling economy, the Bundesbank claims.
It says orders were brought forward ahead of the original Brexit deadline in March, leading to a dearth in demand afterwards:
In today’s monthly report, the Bundesbank explains:
The downturn in the industry has increased somewhat because demand from abroad has fallen.
In particular, exports to the United Kingdom were weak in the spring. One reason for this was the Brexit deadline scheduled for the end of March. This had resulted in large purchases in the UK in the winter months.
This led to a countermovement in the spring.
The bank also points out that construction output fell sharply, after having risen sharply in the winter due to favorable weather conditions. Private consumption has also been held back by weak car sales.
Holger Zschaepitz(@Schuldensuehner)
Bundesbank sees risk German economy could enter recession. Says that German output will remain “lackluster” in Q3 and “could continue to fall slightly”. That would be 2nd straight quarter of contraction, typical definition of a recession, after a 0.1% decline in Q2 2019 (via BBG) pic.twitter.com/h7w5UVfPGh
A German flag flies in front of the Bundesbank headquarters in Frankfurt, Germany. Photograph: Bloomberg/Bloomberg via Getty Images
Newsflash: Germany’s central bank has warned that Europe’s largest member could fall into recession this autumn.
In a new monthly report, the Bundesbank said Germany’s economy may be shrinking in the current quarter (July-September). It fears that factories are struggling, dragging the wider economy down.
The Bundesbank says:
“The main reason for this is the continuing downturn in the industry.
“While domestic consumption continues to isolate the economy, the jobs market is already showing signs of weakness and confidence in the services sector is also dropping.”
Data released last week showed that German GDP shrank by 0.1% in the second quarter of 2019. A second quarterly contraction in a row would mean a recession.
DailyFX Team Live(@DailyFXTeam)
Bundesbank sees risk that Germany could see a another contraction in growth in Q3 $EUR
Such concerns raise the chances that Berlin launches a new stimulus programme, especially as finance Minister Olaf Scholz has floated the idea of a €50bn spending spree.
Will Britain soon follow the Eurozone’s example, and impose negative interest rates on its banks?
Not if Mark Carney has anything to do with it.
The Bank of England governor has poured cold water on the notion, telling the Central Banking website that they’re not on the table (yet, anyway).
He said:
“At this stage we do not see negative rates as an option here. I am not criticising others that have used them, but we don’t see it as an option.”
However, Mark Carney’s term at the BoE is nearly over, so it’ll soon be his successor’s problem....
Bloomberg also believes that the fall in eurozone inflation puts more pressure on the European Central Bank to launch a new stimulus package.
It says:
The report adds to negative data over the past weeks that may convince officials that bold steps are needed to revive momentum in the euro area. Concerns about a global downturn are deepening, as Germany’s economy shrank in the second quarter while growth in the 19-nation region came in at just 0.2%.
The ECB is already expected to announce fresh measures to jump-start the euro-zone economy when policy makers meet on Sept. 12, with most economists predicting at least a cut in the deposit rate from the current minus 0.4%. President Mario Draghi signaled last month that all options are on the table, including a potential restart of quantitative easing.
Finland’s Olli Rehn claimed last week that the ECB would go further than the markets expected (a move which promptly pumped up market expectations).
Here’s some reaction to the drop in eurozone inflation:
Fred Ducrozet of Pictet Asset Management says inflationary pressure remain subdued in the single currency bloc:
Frederik Ducrozet(@fwred)
So, with the details now. Euro area core HICP inflation was revised 1bp lower, to 0.87% in July (down from 1.12% in June), on slightly weaker core goods inflation. No change to the big picture of subdued underlying price pressure. pic.twitter.com/5ZgEv3q2P0
BUT! Dig deep enough into the data, and you find this:
Frederik Ducrozet(@fwred)
BOOM. Euro area super core inflation *rose* to a new cycle high in July, to 1.4% on the old measure. It won't stop the ECB from announcing a new easing package in September, but data remain consistent with a gradual improvement in the underlying inflation trend. pic.twitter.com/gpzGqIJooc
Economist Sean Richards points out that inflation is running twice as high in the UK - partly due to sterling’s recent weakness (pushing import prices up).
Shaun Richards(@notayesmansecon)
If we compare with the UK CPI at 2.1% which is the same measure we see a 1.1% difference. Why? Some is the impact of a lower UK Pound £ and some is that the UK is prone to inflation.... https://t.co/TlL2HclUc4
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