Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
Asian shares run out of steam, oil swings higher (Reuters) Asian shares slipped on Wednesday after two sessions of solid gains, while oil prices swung higher as the market reconsidered the chances of a meaningful deal to restrict supply later in the year. The mood was still skittish - when China set a slightly lower guidance rate for its yuan, the yen and safe-haven bonds got an instant boost. As investors realized this was not some message from Beijing on devaluation, the moves quickly reversed. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.6%, reversing early gains of 0.4%, as its bear market rally petering out after a 3% rise over the previous two sessions. The Shanghai Composite Index .SSEC slid 0.3% and South Korea .KS11 0.1%. Japan's Nikkei .N225 fell 1.7%, but is still up more than 5% on the week.
China's Slumping Exports Could Sink The Global Economy (Seeking Alpha) China's January exports fell by 6.6% Y/Y. It was the biggest fall since July, which precluded August's yuan devaluation. Imports fell 14.4% - the biggest drop since September. Disappointing trade data could trip financial markets, emerging markets or trigger another yuan devaluation. Econintersect: This article proceeds from the apparent assumption that China's exports support the global economy. But couldn't causation be driving the other way? Might not the slumping global economy be driving China's exports lower? Even more likely, the two factors may be self reinforcing components of a much more complex relationship with many other equally important variables.
Why Negative Interest Rates Will Fail (Frank Hollenbeck, The Mises Institute) Econintersect: Hollenbeck makes some very good points but that is entirley accidental starting from his implied point of reference: that banks lend reserves. Once we get past that important conceptual failing, Hollenbeck then states the real reason that negative interest rates have no significant effect on bank lending:
"With the world economy sinking into recession, few banks have credit-worthy customers and many banks are having difficulties collecting on existing loans."
Anger Builds Where Obama Seeks Shelter for Immigrant Children (Bloomberg) Amid a resurgence in the pace of unaccompanied migrant children crossing the U.S. border, President Barack Obama is facing angry opposition as he searches for places to house them temporarily. The administration is attempting to assemble a network of shelters on military bases and other federal facilities to lodge thousands of children awaiting immigration proceedings after fleeing violence in El Salvador, Guatemala and Honduras. That's hit a nerve in communities, some in crucial presidential swing states such as Colorado and Florida, where potential facilities were announced without community input and later scrapped.
The world economy is not necessarily heading for a crisis, it is probably just heading for a slowdown - but risks abound. Moreover, such risks are bound to affect banks, particularly those of bank-dependent Europe. The weakened banks will then damage economies.
Policymakers must remain aware of these downside risks and do what they can to avoid adding to them. One thing remains clear: banks are still the weak links in the global economic chain. People worry about the health of these huge, highly leveraged, extremely complex and opaque behemoths. They are undoubtedly right to do so.
North Sea oil workers will be given government funding to retrain as teachers as price rout continues (City A.M.) Funding will be available for North Sea oil and gas workers who wish to retrain as teachers, the Scottish education secretary Angela Constance announced today. Financial support to help workers who have been made redundant will come from the £12 million Transition Training Fund, launched by First Minister Nicola Sturgeon on 1 February. Funding will be prioritised for those who wish to retrain in science, technology, engineering and maths (STEM) subjects. Econintersect: Such employment changes have been looming even without the price decline. See next article.
Japan's household spending drop in 2015 confirms broader consumption lapse (Xinhuanet) Average monthly household spending in Japan dropped 2.7% in 2015 from a year earlier to 247,126 yen (2,154 U.S. dollars) in price-adjusted real terms, the Internal Affairs and Communications Ministry said in a report on Tuesday. The latest annual decline follows a 3.2% slump in 2014, as spending on food retreated 0.5% and spending on clothes tumbled 6.4%. Outlays on furniture, meanwhile, were down 4.6%, the statistics bureau said. Econintersect: Thus all adds up. The reduced household consumption over the last two years of approximately 6%. The estimated drag on consumption for the consumption tax increase in early 2014 was estimated by us to be close to 5%, so much of the decline in consumption can be attributed to the ill advised tax increase. See Japan: Conflicted Policy (GEI News, July 2013).
1.27 Trillion Tuesday - China's Bad Loans Jump 51% In 12 Months (Seeking Alpha) Bad loans at Chinese banks jumped 7% in the fourth quarter and are now topping 1.27 Trillion Yuan which is, fortunately, "only" $196 Billion but still - that's a LOT of bad loans! And, of course, this being China, those are just the ones they are admitting to. If you include "special-mention" loans, where future repayment is at risk but yet to become nonperforming, the industry's total troubled loans swelled to 4.2 Trillion Yuan ($648 Billion), representing 5.46% percent of total advances made by banks. But this hasn't hindered a record in China's Total Social Financing (TSF) in January. (Econintersect: TSF is an economic barometer that sums up total fundraising by Chinese non-state entities, including individuals and non-financial corporates.)
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