Economics summary

At the Federal Reserve rate decision, the Fed, no surprisingly, announces that it will be patient with raising interest rates. Fed’s description of the current economy is still the same as in December. In December, the Fed described the economy as “strong”, now it says the economy is “solid”. It continues and says that the consumer spending and the job gains have been growing strong also the unemployment rate remains low and the inflation near Fed’s objective of 2 percent . It (The Fed) says that in the light of the global economic and financial development and muted inflation pressures, it will be patient when determining future interest rates. At the press conference Jerome Powell mentions a tighter financial condition, weaker global economic growth, uncertainty about government shutdown, the Brexit,   and that these obstacles (cross currents) can hurt the US economy. He continues and says that the risks of keeping low interest rates have subsided and the risks of high...

Yesterday, The British Parliament was voting on 7 amendments for Brexit, only two amendments won the majority of the votes. The amendment about allowing Parliament time to pass a new law to avoid a no deal Brexit lost the majority. Not surprisingly, the none binding amendment which would reject a hard Brexit won the majority of the votes. For more details about each of the amendments: here . Theresa May supported the amendment for renegotiate the bac kstop deal, a deal for free border with Ireland. It took six minutes for the EU to decline a renegotiation for the backstop deal. This is now a waiting game of who will first give in when the deadline for the Brexit, 29 th of March, comes ever closer. Either the British Parliament or the EU. It will be contradictory if the EU, due to their steadfastness about backstop deal, lead to a Brexit with no deal. Same goes for the British Parliament, their principle about the backstop deal might have to be set aside to avoid a least desirabl...

In the aftermath of the financial crisis, the Federal Reserve (Fed.) has been cutting interest rate and buying treasury securities, agency debt and agency mortgage backed securities to lower the longterm interest rate and thus stimulates the economy. This leads to a built up of the Fed’s balance sheet, up until 2017, the Fed has been reinvesting the proceeds of the maturing securities. Since 2017, the Fed is gradually reducing the holding of these securities, and to lower its balance sheet by decreasing reinvestment of the proceeds. There are two factors that are important in the financial market: The solvency regulations of the financial institutions and the systems for liquidity management. In the aftermath of the financial crisis, banks are required to hold more liquid assets, often through required reserve in the central bank to obliged the liquidity coverage ratio. As a result, the required liquidity in the Fed has been higher than necessary these last years, thus cre...

On Friday, The US President signs a bill to reopen the government after 35 days with government shutdown. The bill will fund the government for three weeks while the parties are trying to come to an agreement on the issue of border security. This leads to about 800 000 federal workers temporarily back to work. President Trump hasn’t managed to gather enough support for the funding of a border-wall, but says that he is prepared for another shutdown if necessary, and that the possibility for him to exercise his power to declare national emergency is also still on the table. The stall in budget talk is a clear reminder of President Trump losing the majority in the Senate at the midterm election last year. This will make it difficult for him of getting his future policies approved. The market in the EU area has had a weak end last year due to temporarily factors, most analysts are expecting a gain in the market on the first half of 2019. The IFO Business Climate Index fell 1.9 point...

The Governing Council of the ECB keeps the interest rate unchanged at 0%, as expected by the market. It expresses that the risks for an economic downturn have become higher. The members of the council all agreed that the risks for a downturn are higher, but not all members agreed about how long these risks will last. Some of the members believe that a Brexit solution, The Chinese government’s measures to address the slowdown, and the rebound from the car industry in Germany, all these will help reduce the risks of an economic downturn. Other members see the downward trend in macroeconomics indicators in these past months, and believe that they will lead to reduce sentiments in the EU’s monetary policy and in the economy. Because of the disagreement, the council decides that there will be no change in the monetary policy in the EU. The council needs more time to assess the risks for a downturn and signs for growth and inflation, and how long potential risks will last. At the press...

The Nikkei Manufacturing PMI shows a fall in Japanese manufacturing sector to 50 from 52.6. The U.S stock market rose yesterday while the European stock index, Stoxx600 fell by 0.1%. The stock markets in Asia also rose today. The French Business Climate, a survey of current business condition in France, released by INSEE , shows an unchanged value of 103 in January from December. The value has been falling on the second half of 2018. The Consumer Confidence released by the European Commission shows a pessimistic outlook in the EU, though the value is rising from December to January in the EU Area, but the December value has been revised down heavily. The value is about the same level as it was in 2015-2016. U.S Housing Price Index, released by the FHFA shows a rise by 0.4% from October to November. The October value got revised up from 0.3% to 0.4%.  Twelve months growth remains unchanged of 5.8%. The U.S housing market seems strong and coincide with the fundame...

The S&P 500 fell by -1.4% yesterday. The stock index of European stocks, Stoxx600 fell by -0.4%. Asian stock markets also fell due to the trade conflict between the U.S. and China. A positive surprise is that the Asian stock markets didn’t fall as steep as most feared. The ILO Unemployment rate in the UK for September-November 2018 comes in as 4%. Down from 4.1% for the June-August 2018. There are 141 000 more people at work, above market’s expectation of 85 000. Claimant for unemployed benefits increased by 20.8 thousand in December 2018, higher than expectation of 20 thousand. The data shows the same development as in 2017 and 2018. The unemployment rate is at the lowest in the UK, it hasn’t been this low since December 1974 to February 1975. This affects the wage growth, the average earnings incl. bonus(3 months) rises by 3.4%. Excluding bonus, the wage growth stays the same as previous three months of 3.3%, but still highest growth in 10 years. With low productivity ...

At Davos , the International Monetary Fund estimates that the world ‘GDP will be 3.5% this year and 3.6% next year, down from what it has estimated earlier by 0.2% and 0.1% respectively. The downward adjustment is bigger for the emerging market than for the developed market. For the developed market, the downward adjustment is mostly from the EU countries. Christine Lagarde, the managing director of the IMF in her speech yesterday, says that the downward adjustment is due to two years of strong economic growth and expansion. She says the economic is still growing, though slower, and that the risks are rising. Some of the risks are highly connected, like how the rise in tariffs and trade conflict lead to volatility in the market. This leads to tighter lending terms, which are one of the risk factors for countries with high debt. Even though the risks are higher, on the question about the recession is around the corner, she says the answear is no. Still, due to the risk of decline...

China published its GDP numbers today. GDP numbers for the fourth quarter comes in as 6.4%, year over year. For 2018 as a whole, the GDP is 6.6%, down from a revised growth of 6.8% in 2017. This is the weakest GDP growth from China since 1990. The growth in exports is down from 6% for the third quarter, year over year to 2.1% in the fourth quarter. This is due to the trade conflict with the US and slow growth from the global economy. Domestic demand declines due to a weaker growth in the real estate market. China’s industrial production is 5.7% in the fourth quarter, year over year, down from 6% in the third quarter. Retails sales comes in as 6% in the fourth quarter, down from 6.5% in the third quarter. The Chinese government has already stepped in to stop further decline in growth. It has reduced the capital requirements from banks, tax relief and approving several construction and infrastructure projects. The stock markets in Asia didn’t seem to be affected by these numbers, a...

The U.S Secretary of the Treasury, Steven Mnuchin, proposes lowering the tariffs on Chinese imports to calm down the market, but the United States Trade Representative, Robert Lighthizer, doesn’t seem to support this proposal. Robert Lighthizer is one of the key persons that can change President Trump’s strategy. There is no official statement about this news, but the market reacted positively. The U.S and China are trying to find a solution to the trade conflict. President Trump knows that the market is weighted down by the trade conflict and a solution to the conflict will be received positively, this, and the struggling to get the Mexico border wall financed, leading to government shutdown, gives the President the incentive to find a solution with China as soon as possible. On the other side, the Chinese government is losing the growth from its economy. It has deployed measures to keep up this growth. The Chinese government fears that multinational companies will relocate ...

The Labour party didn’t win the majority of the vote for its proposal of no confidence vote against the British prime minister, Theresa May and her government. The proposal got 306 votes for and 325 against. This is the second time May won a vote of no confidence proposal. The first time was in December and yesterday was the second time. She has now until Monday to present a plan B for a Brexit deal to the British parliament. She gives the indications after Tuesday night that she is going to cooperate with the other parties in the parliament. Many signs point to a postpone of a Brexit deal. The EU indicated yesterday that it would accept a postpone of Brexit deal as far as 2020. The British pound (GBP) has risen in value lately due to the majority in the British parliament shows signs of wanting to avoid a hard exit and May’s comment of cooperation with the other parties in the parliament. British consumer price index (CPI) has been trending downward lately because of the...

The draft of a Brexit deal was downvoted at the British parliament yesterday. 432 members of parliament (MP)voted against the deal while 202 voted for the deal. The deal was thus lost with the majority of 230.The lost was one of the biggest for a British government. The British prime minister, Theresa May will now have to work with the Labour Party and postpone Brexit. The leader of the party, Jeremy Corbyn proposes a vote of no confidence and challenges Theresa May’s leadership. The proposal will be debated and voted today. May has three days to present a plan B for Brexit, this might be difficult because the MPs that voted against the deal, had all their own reasons, and trying to find a common ground will not be an easy task. If May manages to find a solution with the Labour Party, and get it’s support, she might be able to manage to present a plan B for the British Parliament. If that happens, the Brexit will be postponed to the summer. The British pound (GBP) reacted...

The highlight of this week in economics is probably the voting in the British parliament for the Brexit deal. The voting will be happening at around 20:00 GMT+1 tonight. It was planned to be on the 12 th of December, but the British Prime Minister, Theresa May had postponed it. She knew the deal wouldn’t get approved in the British parliament, and she wanted to negotiate with the EU further about the backstop solution. The renegotiation with EU didn’t go so well. The EU didn’t want to renegotiate the deal, and May had to get the support from the MPs in the British parliament. So far it seems like she hasn’t been able to get enough support for the approving of the deal. The Labour Party expresses a downvote of the deal, because the party wants an opportunity to themselves renegotiate a better deal. The Conservatives Party also expresses a downvote of the deal, because they want a harder Brexit deal. The Democratic Unionist Party also expected to downvote the deal. The exact resul...

Wall Street has slowed down somewhat on this Friday (11 th of January) after it has been gaining since the beginning of the year. Earnings season will be starting on Monday(14 th of January), and this will mostly likely be determining how the stock market will move onward. The Chinese stock market ended in the negative on Monday morning due to the released exports/imports numbers year over year that were weaker than the market expected. The exports fell by -4.4% in December, the market was expecting a gain of 3%. Imports fell by -7.6%, the market was expecting a gain of 5%. This is the weakest imports by China since 2016. The slow in the Chinese exports in December might be due to the fact that most of the exports to the U.S already have been expedited because of fear for the raise in tariffs that were supposed to happen this month. The slow in imports is probably due weaker domestic demand. The Chinese government will try to stop this slow in its economy by market interven...

Most of the stock markets in Europe started Thursday in red, but once Wall Street opened with a gain, they ended in a positive close. Stock markets in Asia also opened with a gain on this day. This is the fifth day in a row with gain in the U.S stock market, this indicates more than just a correction from the extensive loses in December. The trade talk between the U.S and China hasn’t brought any new result, so this is probably not the reason the stock market has been rising recently. The U.S government shutdown and its uncertainty still looms, the shutdown has been ongoing for 20 days now, almost the longest government shutdown in the U.S history. The longer the shutdown, the bigger are the economic consequences, though the stock market doesn’t seem to be affected by this. The reason for the positive sentiment in the market might be due to the recent signals from the   U.S Federal Reserve where it will be patient and flexible with the monetary policy and rate hikes. The ...