Economics summary

The UK prime minister, Boris Johnson announced yesterday that he would shut down the British parliament for five weeks in September and October. The British parliament is currently on a summer break until the 3 rd of September. The parliament members will be returning to work for a week before they are suspended until the 14 th of October. From the 14 th of October, there will only be less than three weeks before the UK will have to leave the EU, with or without a Brexit deal. Johnson says he has to shut down the parliament to prepare for the Queen’s speech which will be held at the opening of the parliament to mark the beginning of a new parliamentary session. Johnson will try to get a new Brexit deal before the deadline of 31 st of October. After meeting with the EU-leaders, Johnson seems to agree on the Brexit deal that Theresa May has negotiated forth, except that the current backstop plan with the Irish border has to change. The current backstop plan risks of locking...

Recent auctions of the 2 years US treasury notes have been keeping the 2 year treasury yield from declining. Similar to how a strong demand increases the bond price and decreases the bond yield, a strong supply would decrease the bond price and increase the bond yield. Due to this, the 2 year treasury yield has risen more than the 10 year treasury yield. This makes the yield curve to invert. Inverted yield curve has been a reliable indicator for economic recessions. Italy’s 10 years treasury yield has also declined. Bond yield decreases when there is high demand for treasury bonds. Investors in the financial markets tend to seek assets in safe haven countries, such as treasury bonds of Germany, France and the US, when there are uncertainty in the market , thus making the price of treasury bonds to rise and the treasury yield to fall. Lately, bond yield of countries that usually are not considered as safe haven, like Greece, Italy and Portugal have been falling more sharply than f...

The FOMC Minutes from July’s interest rate decision meeting was released yesterday. The Minutes showed that the participants agreed on the wording Powell had used at the meeting, like how the lower target range for the federal funds rate was a part of a recalibration of the stance of policy, or mid-cycle adjustment, and not a start of series with rate cut. Two of the participants preferred to maintain current target range for the federal funds rate, while a couple of the participants indicated they would have preferred a 50 basis point cut. Since the July meeting, the trade conflict and market volatility had escalated. The financial markets had priced in a 25 basis point rate cut on the September interest rate decision meeting, and a small probability of a 50 basis point rate cut. Indices for 22 nd   of August Dow: +0.9% (20 th of August) S&P 500: +0.8% (20 th of August) Nasdaq: +0.9% (20 th of August) Nikkei: -0.1%   (22 nd of August) Chinese indi...

News about Germany readying a fiscal policy plan to counter a possible economic downturn had gotten a lot of attention yesterday. German finance minister, Olaf Scholz said on Sunday that the government could come up with 50 billion euros in stimulus to prevent an economic crisis. The stimulus would target strengthening public spending, and the goal of the stimulus would be to keep the unemployment from rising. The US had given Huawei another 90 days with set of exceptions that protected the US customers from ban on doing business with Huawei. The Secretary of Commerce, Wilbur Ross said that US companies doing business with Huawei needed more time to find new solutions. The next deadline would be 19 th of November. Also, additional 46 subsidiaries of Huawei were added to the ban list. Trump’s economic adviser, Larry Kudlow, stated on the past weekend interview that there was no recession in sight. The chief of the Federal Reserve Bank of Boston, Eric S. Rosengren, also had sim...

The IMF didn’t support the US’s accusation of China being a currency manipulator.   Last week the US had accused China for manipulating the yuan to achieve trade advantage over the US companies. The accusation came after the Chinese central bank let the yuan depreciate after recent tariffs hike on Chinese goods. On Friday, the IMF released the annual review of China’ economic policies. The report concluded that the level of the yuan was in line with China’s economic fundamentals. The report went on and said that China should keep its exchange rate flexible and market determined to help absorb the tariff shock. Argentina’s primary elections on Sunday resulted in victory for country’s centre-left opposition leader. This led to uncertainty in the financial markets of the country to yet again to be in a difficult economic situation. Argentina had been in several economic recessions. The country had been in recession 16 of the last 50 years as well as 22 signed loan agreements wit...

The industrial production in Germany fell by 1.5 percent from May to June adjusted for seasonal fluctuations. The decline was larger than expected by the financial markets. The energy and construction sectors showed an increase, otherwise Germany’s production fell by 1.8 percent. Overall, the data showed that the industrial production for the second quarter of 2019 fell by 1.9 percent from the previous quarter, which would mean that Germany’s GDP would be declining in the second quarter. The energy and construction sectors had showed solid growth, public spending and investments expected also to show solid growth after a weak first quarter as well as net exports. These variables might be enough to keep the GDP growth positive in the second quarter. China’s balance of trade for July showed a 3.3 percent export increase from July 2018. The financial markets were expecting a decline of 1 percent, after the -1.3 percent decline year on year from June 2018 to June 2019. Imports fe...

The Chinese yuan had this morning weakened to 7 CNY per USD for the first time in 10 years (9 th May 2008). The depreciation came after the People’s Bank of China (PBOC) set the yuan reference rate at 6.9225 CNY per USD before the market opened, the weakest level since December 2018. It could be interpreted as the Chinese government was using its currency as a mean in the current trade conflict with the US. The PBOC stated that its currency policy was unchanged, and the depreciation came due to expectations of tariffs against China. The Federal Reserve cut the federal funds rate by 0.25% to 2.25% last week, as expected by the financial markets, and disappointed those who expected a higher cut than 0.25%. The stock market fell after the interest rate decision meeting, and kept falling after Donald Trump announced further escalation of the trade conflict by increasing the tariffs on Chinese goods. US non farm payrolls for July published last week was as the market had expected...