Economics summary

The British Prime Minister, Theresa May, in an effort of trying to get her Brexit deal approved, has offered on Tuesday the UK lawmakers a new Brexit referendum . This has led to her losing even more support for her Brexit deal, and the leader of the House of Common , Andrea Leadsom, to quit the government. If Theresa May’s Brexit deal is going to a vote for the fourth time, she most likely still won’t get enough vote, thus leading her to resign as the British prime minister. The possibility is also true that she will resign without a fourth Brexit deal vote. A potential candidate to take over as the British prime minister is the pro-Brexit member of Parliament, Boris Johnson. If he becomes the new prime minister, the possibility of a hard Brexit will rise, even though most of the MPs are against a hard Brexit. The FOMC minutes from the Fed meeting at the beginning of May shows that the board members still agree on keeping the target funds rate unchanged for now. The Chai...

OECD’s Economic Outlook has concluded that last year’s warning about the negative consequences from US and China’s trade conflict is becoming a reality. The global growth is projected to be only 3.2% this year, almost one percent lower than what has been projected last year. Europe and Asia are projected to have the weakest growth due to declining trade and investments. The global economy has been in a cyclical upside last year, now divergence has emerged between sectors and countries, depending on their exposure to trade tensions, the strength of fiscal responses and policy uncertainties. The OECD also mentions that if the US and China implements 25% tariffs on all trade, the global economy will slow even further by 0.6%. The trade conflict and weaker than expected economic indicators from China have led its currency to depreciate to the weakest level since last autumn. Against the US dollars, the yuan is edging closer to the psychological value of 7 , a level which has earlier...

Japan’s preliminary GDP rose by 0.5% from the fourth quarter 2018 to the first quarter 2019. The market has expected a negative 0.1%. Have in mind, though that this is just a preliminary number. Japan exports have been weak, but they are compensated by weak imports. Domestic demand has been strengthened by an increased in public and housing investments. Even though the first quarter has showed strong numbers, the important indicators of private spending has declined by 0.1% and corporate investment has declined by 0.3%. The recent increase in housing investment in Japan might be due the tax increase, if so, the housing investment will start to declining eventually. On Thursday (16 th of May), the US initial jobless claims have declined by 212 000, this confirms a low unemployment rate also in May. Philadelphia Fed Manufacturing index shows a strong increase in future outlook from April to May, over market expectations. The preliminary consumer sentiment for May, released by the ...

With only a couple of twitter messages, The US president, Donald Trump has almost managed to reverse Monday’s decline in the stock markets. In the messages, he ensures the financial markets that, when the time is right, US and China will come to an agreement of a trade deal. The investors in the financial markets know that an escalation of the trade conflict won't be good for any of the two countries, and those two will have to eventually come to an agreement. US’s tax reform and the ongoing expansionary fiscal policy that started about a year ago have been lifting the growth of the US economy, and with an absent in inflation growth, the Fed keeps the interest rate unchanged. When the Chinese government also implements stimulus measures to boost its economy, the stock markets will keep rising. There is a limit of how much the investors worry about one and only topic, as long as the trade conflict doesn’t escalate even further, and as long as a deal will be made, the inves...

China has announced yesterday that it will increase import tariffs on US goods . From the start of June, Chinese imports on 60billion dollars of US goods will get a tariff hike. About half of the 5 000 products will get a tariff increase to 25%, the rest of the goods will be get between 20, 10 and 5% hike. The editor in chief of China’s Global Times, Hu Xijin, said on twitter that “China may stop purchasing US agricultural products, energy, reduce Boeing orders and restrict US services trade with China. Many Chinese scholars are discussing the possibility of dumping US treasuries and how to do it specifically”. China is the biggest foreign holder of US treasuries, a sell off of treasuries will lead to rising treasury yield. Most analysts believe that China won’t be selling off US treasuries, because this will reduce portfolio’s value for the Chinese investors. Even though the movements in the stock exchanges around the world have been weak, the market’s reaction to the ...

While the current uncertainty in the financial markets was thanks to the trade conflict between the US and China, yesterday’s fall in the stock markets should also be seen together with EU-commission’s downward adjustment of the economic growth in the EU Area for 2019 . Though, there wasn’t a big forecast adjustment of the economic growth for the EU area, the adjustments for Italy and Germany gave uncertainty to the financial markets. Economic growth in Italy was forecasted to be only 0.1% this year, half of what was forecasted in February. Budget balance was forecasted to be -3.5% of GDP by 2020. The announcement gave more conflict between the EU and the Italian government. Germany’s economic growth was forecasted to be 0.5%, instead of 1.1% forecasted in February. Even with gradually better economic indicators from the EU, the commission still believed Germany’s economy was uncertain. If the trade conflict between the US and China continues, the economic growth in Germa...

The trade talk between the US and China got a new turn after president Trump last night announced possible tariffs increase. The US annouced possible increase of the trade tariffs to a 25% rate on 200 billion dollars’ worth of Chinese goods from Friday. Currently the trade tariff is at 10%. Additionally, president Trump is announcing that about 325 billion dollars worth of Chinese goods that currently aren’t affected by tariffs, risked being imposed a tariff rate of 25%. The Chinese stock index falls by 6% after the news. Friday’s jobs numbers from the US showed a solid labor market. Non farm payrolls for April increased by 263 000, the market was expecting an increase of 190 000. The unemployment rate for April declined by 0.2% to 3.6%. Even with a strong non farm payrolls increase and lower unemployment rate, the average hourly earnings hadn’t increased by much. Average hourly earnings increased by 0.2% from March to April, lower than market expected, giving a year on year ...

As the market expected, the Bank of England held the bank rate and the forward guidance unchanged at the interest rate decision meeting yesterday . This was due to the Brexit deal wasn’t settled, and the BoE wanted the forward guidance and the monetary policy to reflect the Brexit outcome and the UK’s relationship with Europe. The BoE had been relying on a soft Brexit outcome, which should also be the most likely scenario, due to fact that the British Parliament had so far been rejecting a hard Brexit alternative. A soft Brexit would lead to the need for more rate hikes than the market anticipated, this would contrast with other central banks who had been on a dovish side lately. The final manufacturing PMI data in the EU area was unchanged from the flash estimate. The PMI index was still below the value of 50, and indicated a contraction in the manufacturing sector. The president of the Bundesbank, and one of the candidates to take over for Mario Draghi later this year, ...

As expected, there were no new signals about the US monetary policy from yesterday’s Fed’s interest rate decision meeting , and the target federal funds rate was held still at 2.25% – 2.50%. The Fed didn’t see a strong case for neither a rate cut or a rate hike. The Federal Reserve’s Chairman, Jerome Powell said that the economic growth had been stronger than anticipated while inflation had been weaker due to temporarily factors such as declining fee on financial services. He also was less pessimistic about the global uncertainty due to better than expected economic indicators from the EU area and China, progression in the US-China trade talk and less uncertainty from Brexit. The US ISM Manufacturing PMI declined more than market had expected. The index fell to 52.8, and confirmed the last few month’s downward trend. This should also be seen together with the negative impact from the trade conflict between the US and China and the weak global development. If the index kept de...