A confluence of issues around the world are now beginning to converge. Brexit negotiations are lagging with no signs of progress. Hurricane Harvey has brought into direct focus the infrastructure plans of the Trump administration and the need for investment (a byword for debt). And the latest missile test by North Korea means that ‘all options are on the table‘ according to Donald Trump.
Within the global economy, U.S. GDP figures were revised up just weeks before the Federal Reserve announce their balance sheet reduction plan. Aside from GDP, newly released data showed falling job creation for the month of August, a continuation of declining car sales and construction spending having dropped to a nine month low. In Europe, German inflation accelerated in time for the ECB’s governing council meeting next week, where the central bank could indicate an intention to scale back asset purchases from 2018. Meanwhile, German retail sales contracted 1.2% for the month of July. The consensus was for a 0.4% drop.
Geopolitical risks, as noted by Jacob Rothschild recently, are growing in stature, just as central banks step up their plans to tighten monetary policy.
We’ve also seen how the likes of Barclays, Credit Suisse and HSBC are now part of a chain of banks actively developing a new settlement currency based on blockchain technology (the same technology that is behind Bitcoin and Ethereum). The ‘Utility Settlement Coin’ is slated to launch sometime in 2018. The key take away from this is that central banks could soon be in a position to issue their own crypto-currencies, further cementing progress towards the creation of a cashless society.
- Economists surveyed by Reuters had been expecting payrolls to grow by 180,000 in August and the unemployment rate to hold steady at 4.3 percent. A broader measure that includes discouraged workers and those holding part-time jobs for economic reasons also was unchanged at 8.6 percent.
- Previous months’ job totals also were cut. June was revised down from 231,000 to 210,000 while July fell from the initially reported 209,000 to 189,000, the Bureau of Labor Statistics said.
- Wage growth also was weak for the month, with average hourly earnings up 0.1 percent for an annualized rate of 2.5 percent. The average work week declined by 0.1 hour to 34.4 hours.
- The ranks of the unemployed rose by 151,000 to 7.13 million, while the employment level fell 74,000 to 153.4 million. Also, those counted as not in the labor force rose 128,000 to 94.8 million.
- Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have joined UBS, BNY Mellon, Deutsche Bank, Santander, NEX and blockchain startup Clearmatics in a project to create a the “utility settlement coin”. The currency was originally started by UBS.
- The project could pioneer the issue of cryptocurrencies by central banks.
- “It may well inform the way central banks choose to move things forward. We see it as a stepping stone to a future where central banks issue their own [cryptocurrency] at some point,” Hyder Jaffrey, UBS director told Coindesk.
- In a tense press conference alongside his British counterpart David Davis after the third round of exit talks in Brussels, Michel Barnier was scathing about the UK’s approach to the financial settlement, citizens’ rights and hopes for future access to the single market.
- Barnier, who said that he had been left impatient by the British approach, complained that there had been “no decisive progress” – and was again contradicted by Davis, who insisted that progress had been “concrete”.
- The sharp disagreements between the two sides, which were particularly focused on the so-called divorce bill, exposed the scale of the gap that remains after the third round of talks.
- President Donald Trump promised swift emergency funding to help Texas recover from Hurricane Harvey, but Republicans in Congress will have the ultimate say over how much aid is delivered — and how quickly it begins to flow.
- Trump may have to wait a while. After previous storms, lawmakers have usually demanded detailed spending plans for emergency funds, while conservatives have argued that disaster funding should be offset by domestic spending cuts.
- “The real number, which will be many billions of dollars, will go through Congress,” Trump said Monday at a news conference ahead of a planned visit Tuesday to Texas to meet with local officials involved in the response. “It will happen very quickly.”
- U.S. consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015, which could bolster expectations that the Federal Reserve will delay raising interest rates until December.
- The Commerce Department said on Thursday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 percent last month after an upwardly revised 0.2 percent rise in June.
- German inflation accelerated more than economists predicted as European Central Bank officials prepare to discuss paring back stimulus.
- The rate rose to 1.8 percent in August from 1.5 percent in July, the Federal Statistics Office in Wiesbaden said on Wednesday. Economists forecast an increase to 1.7 percent, according to a Bloomberg survey. Consumer prices rose 0.2 percent from the previous month.
- The report from Europe’s largest economy comes a week before the ECB’s Governing Council convenes for a two-day meeting to discuss the future of its bond-buying program, which is scheduled to run at a pace of 60 billion euros ($72 billion) a month through the end of the year.
- The BEA reported that after its first revision of Q2 GDP (a quarter which ended two months ago), the initial estimate of 2.6% was revised to 3.0%, beating expectations of a 2.7% print, and the highest annualized growth rate since Q1 2015. The annualized Q2 GDP was more than double the first quarter number which as a reminder printed at 1.2%
- While most components were revised higher in the latest release (with the notable exception of government which downshifted from 0.12% to -0.05%) the bigges contributor to the upward revision was Personal Spending, which surged 3.3% in Q2, after rising 1.9% in Q1, and contributing 2.28% of the bottom GDP line.
- U.S. President Donald Trump said that “all options” are under consideration in response to North Korea firing an unidentified ballistic missile over Japan on Tuesday as Kim Jong Un’s latest provocation rattled markets.
- “The world has received North Korea’s latest message loud and clear: this regime has signaled its contempt for its neighbors, for all members of the United Nations, and for minimum standards of acceptable international behavior,” Trump said in a statement Tuesday before flying to Texas.
- “Threatening and destabilizing actions only increase the North Korean regime’s isolation in the region and among all nations of the world,” according to the statement. “All options are on the table.”
- Lending to British consumers expanded at the weakest pace in more than a year in July as their confidence in the economy ebbed, according to figures that clouded the outlook for growth later this year.
- Annual growth in consumer credit slowed to 9.8 percent from 10.0 percent in June, the weakest increase since April 2016, the Bank of England said on Wednesday.
- The BoE said that in cash terms, consumer credit increased by 1.179 billion pounds in July – well below the 1.5 billion pound consensus in a Reuters poll of economists and marking the smallest rise this year.
CNBC: Status of US dollar is being questioned by the market as euro hits another high, investment manager says
- The prestige of the U.S. dollar is being questioned as the currency weakens and competitors such as the euro and the renminbi gain strength, an investment manager told CNBC Monday.
- “There is a short-term discussion of the timing of the balance sheet reduction on the one hand or the winding down of the asset purchase program on the other,” Didier Saint-George, member of the Investment Committee at Carmignac told CNBC about the next steps for the U.S. Federal Reserve.
- “But I think more fundamentally you have what I touch on, which is this global thinking about currencies. If you are a global asset allocator, the status of the U.S. dollar is really being questioned. Is it necessarily the currency that justifies the same status as it has in the past years? I think strategically you can make the case that the dollar could see its status revisited downwards which would benefit the euro, probably it’s benefiting not only the euro, but also the Chinese currency,” Saint-George said.