According to Piper Jaffray, “the most concerning trend” in the quarter was “the reduced efficiency of SEO,” or search engine optimization. Google, part of Alphabet Inc., is favoring its own “Hotel Finder” platform, along with paid links for search results, and this trend could require higher marketing costs.

D.A. Davidson noted that Expedia is exploring alternatives to mitigate its “reliance on search/Google,” but wrote that it sees “no alternatives that will be able to efficiently ‘move the needle’ from a volume perspective anytime soon.” Morgan Stanley wrote that Alphabet is now the “best way to invest in travel.”

TripAdvisor’s adjusted earnings and revenue both missed the lowest analyst estimates. The results “more than disappointed,” Jefferies wrote, reiterating its underperform rating. Analyst Brent Thill added that TripAdvisor’s preliminary 2020 outlook “is not encouraging,” in part because of “continued SEO pressure from Google.”

Third party vendors learned a long time ago that the biggest threat from selling on Amazon is being too successful. When sales move the needle enough to pique the attention of some quant, the risk of Amazon deciding to sell the same product, but cheaper, increases exponentially. The rise of the Amazon Basics line of products is a perfect example.

Are we about to see a “currency pact” between the US and China? Investment bank Jefferies’ Hong Kong-based Christopher Wood sees it as a possible significant development in the difficult ongoing trade negotiations between the two countries.

It could give Donald Trump “a face-saving ‘out’ in terms of declaring victory in negotiations, where he has clearly over-estimated his leverage, for the simple reason that the Chinese leader has more tolerance to take pain than does America’s.”

A currency agreement based on a Chinese commitment not to engage in a competitive devaluation of its renminbi makes sense as both Washington and Beijing want the same thing. Neither wants a stronger dollar and a weaker yuan.
Beijing may see such an agreement as a way at least to end an escalation of the trade war or even to end it. It has no desire to see a major devaluation against the dollar. That would encourage accelerating capital outflow – “the Achilles heel of China’s command economy” -- at a time when such pressures are rising because wealthy citizens are keen to achieve international diversification. The outflow reached about $240 billion in the 12 months to the second quarter.

Devaluation would also make Chinese consumers poorer in dollar terms, undermining the policy of seeking to make the economy more driven by domestic consumption. And it would undermine the current successful policy of attracting foreigners to invest in China’s stock and bond markets.

“The last thing China needs right now is a further sharp appreciation of the US dollar – and that also seems the last thing Trump wants.”  

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China has to manage capital flight risk. The drop below the psychological CNY 7 area earlier this year was a catalyst both for a breakout by the gold price for Chinese investors and the desire to become globally diversified.

Moon and Abe shared the view that the relationship between South Korea and Japan is important and re-affirmed in principle that issues between the two nations should be resolved via dialogue, the presidential office said in a text message. Abe conveyed Japan’s “basic stance” on bilateral issues in his exchange with Moon, the Tokyo-based Kyodo News agency said separately, citing the Japanese foreign ministry.

The brief, 11-minute meeting at the Association of Southeast Asian Nations summit in Bangkok came as a long-simmering feud escalated into a trade-and-security dispute, leading to boycotts of Japanese imports and the decision to scrap an intelligence-sharing pact. The encounter followed a break-through meeting last month between Abe and South Korean Prime Minister Lee Nak-yon.

Moon proposed high-level talks, if needed while Abe said every effort should be made to resolve the feud, Moon’s office said. Abe last met Moon in September 2018 and passed up a chance to meet him for formal talks during Group of 20 events in Osaka in June.

The remarks were the most positive yet since South Korean courts issued a series of rulings last year backing the claims of Koreans forced to work for Japanese companies during the country’s 1910-45 occupation of the Korean Peninsula.

Six weeks ago sentiment was skewing rather negatively towards the opinion that acrimonious disputes between neighbours like Japan and South Korea, the UK and EU and competitors like China and the USA were going to get worse, a lot worse. Today peace seems to be breaking out globally and that is removing a risk premium from markets.

Germany is hopeful for a positive outcome in trade talks between the U.S. and the EU, Economy Ministry spokeswoman Katharina Grave says Monday in a regular government press briefing.

“We need less, not more tariffs,” she said
The government has taken note of comments from U.S. Commerce Secretary Wilbur Ross that tariffs may not be levied on autos imported from the EU
NOTE, Nov. 3: U.S. May Not Need to Put Tariffs on European Cars, Ross Says

Europe has been depending on its export sector to soften the impact of fiscal austerity for much of the last decade. That hasn’t worked so well over the last couple of years, with globalisation under threat from the trend towards nationalism and isolationism evident in an increasing number of countries. The prospect of the trade war winding down, at least for now, has the potential to act as a catalyst for investors to take a second look at the region.

The pound weakened after U.K. lawmakers rejected Prime Minister Boris Johnson’s plan to fast-track his Brexit accord through parliament.

Britain’s currency dropped against all of its major counterparts, but the losses were contained after the government won an initial vote on the deal. Johnson opened the door to a short extension to his Oct. 31 deadline, saying he would pause legislation and go back to the European Union, after earlier threatening to throw out the deal if lawmakers rejected his plans.

“For now it seems the market is still generally expecting this is a setback, but not a fatal setback, to a negotiated Brexit,” said Jeremy Stretch, head of G-10 currency strategy at Canadian Imperial Bank of Commerce. “There hasn’t been a rapid uptick in no-deal pricing at this point,” he said, referring to a scenario where the U.K. would leave the EU with no divorce deal.

The U.K. currency had rallied more than 8% from September’s low as Johnson secured an agreement with the EU and then lawmakers then forced him to request an extension to the Oct. 31 deadline, reducing that no-deal risk.

Sterling dropped as much as 0.7% after the votes to $1.2869, after rallying Monday to touch $1.3013, the strongest level since May. Against the euro, it fell 0.4% to 86.39 pence.

Parliament today supported the deal which, as expected, excises Northern Ireland economically from the UK. That is not going to be received well by loyalist communities in North Ireland. However, it is likely to be positive for the region’s economy since it will have a toe hold between the UK and the EU and subject to corporate taxes could attract inward investment.

Vietnam’s economy expanded 7.3% YoY in 3Q19, the strongest growth in three quarters. In the nine months to September 2019, the economy expanded 7.0%.

In addition, the central bank recently cut policy interest rate by 25bps to 6.0%, the first cut since October 2017. This would reduce cost of funds, increase liquidity, and support growth in consumption and investment—which together account for around 100% of GDP.

For the rest of the year, the economy will face challenges from a high-base GDP growth rate and rising external pressures from slowing global trade and the US-China trade war. However, Vietnam has resilient domestic demand and authorities have helped to support demand by cutting key interest rates. Hence, we forecast Vietnam’s economic growth at 6.6-6.8% for this year.

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The trade war between the USA and China represents a clear signal that China is quickly pricing out of the low-end manufacturing sector. This is a trend which has been underway for some time but it is now gathering pace as the both the cost of doing business and the geopolitical risk increase.

The Brexit ultras in Johnson’s party, known as the Spartans, may be unionists, but their interests and those of the DUP have never been fully aligned. The Spartans want the hardest Brexit possible, and that’s their ultimate priority, rather than the exact form of customs arrangements between the mainland U.K. and Northern Ireland and how exactly consent is given for that by the DUP.

Johnson’s deal doesn’t look like it crosses any of the Spartans’ red lines. They haven’t said so far whether they’ll back him, but some of the noises ahead of the deal’s announcement were positive. They realize if a deal doesn’t pass now, there’s a chance Brexit may never happen. Secure their support, and it’s possible Johnson could win enough votes to pass his deal, as Bloomberg’s Rob Hutton outlined on Wednesday.

Much depends too on whether Brexit-supporting Labour MPs back a deal.

It may seem hard to imagine what the DUP gains from its opposition, other than burnishing its own Braveheart reputation by holding out. But the DUP plays a long game. They’re asking themselves whether the new arrangements, which include customs and regulatory checks on the Irish Sea border, will over time make it easier for Northern Ireland to drift toward unification with Ireland. They’re thinking about how unionist voters will regard their support for a deal that doesn’t give them an effective veto over the new arrangements, as Johnson’s original proposal did. 

It is going to be a monumental task to get Boris Johnson’s deal through parliament without the assistance of the DUP. Unfortunately, the machinations of who votes in favour of the deal are unlikely to be purely in the national interest. Everyone knows an election is coming and parliamentarians are keenly aware that how they vote in this weekend’s question will probably come back to haunt them later.

Medicare for all is a laudable aspiration, but has the potential to be murderously difficult to implement. The healthcare sector employs millions of people and accounts for 18% of the US economy. Every doctor and dentist’s office in America have at least one person handling insurance claims, collecting co-pays, sending out bills etc. With a fully public option most of these administrative staff would be surplus to requirement. In other words, the clear risk from a fully public healthcare option would be recession even if the long-term benefit of cutting back on waste is a net positive.

The midcap FTSE 250 rose 3.5%, its best single-day percentage gain in more than three years, as European leaders indicated there was progress toward reaching an agreed deal with the U.K. on leaving the European Union. The European Union says it has agreed with the United Kingdom to "intensify" Brexit negotiations in a belated attempt to reach a divorce deal ahead of Oct. 31. A number of FTSE 250 components sported double-digit gains, including bank CYBG, building materials distributor Grafton Group and home improvement retailer Travis Perkins. The FTSE 100 however saw much smaller gains, of just 0.7%, because many of those components record revenue in dollars.

The Pound has staged one its largest two-day rallies in years and that is pressuring the shares of companies that rely on overseas earnings. The divergence in performance between the FTSE-100 and the FTSE-250 highlights the benefit to domestically oriented companies from a resolution of the Brexit conundrum.

The U.S. and China reached a partial agreement Friday that would broker a truce in the trade war and lay the groundwork for a broader deal that Presidents Donald Trump and Xi Jinping could sign later this year, according to people familiar with the matter.

As part of the deal, China would agree to some agricultural concessions and the U.S. would provide some tariff relief. The pact is tentative and subject to change as Trump prepares to sit down with China’s Vice Premier Liu He later Friday.

Stocks jumped Friday after the news. Equities had advanced globally earlier in the day amid growing conviction that the U.S. and China would negotiate a trade truce. Trump tweeted earlier Friday that “good things” were happening in the meetings -- and that if the countries did reach an agreement, he would be able to sign it without a lengthy congressional approval process.

On Thursday and earlier Friday, Liu and U.S. Trade Representative Robert Lighthizer held the first senior-level discussions between Washington and Beijing since a previous agreement fell apart in May and tariffs were raised in the months after. The world’s two biggest economies have been trying for the past year and a half to settle their trade dispute.

The words from Bill Clinton’s early ‘90s election campaign must be ringing in President Trump’s ears, “It’s the economy, stupid”. There is a clear rationale for pressuring China on trade but is it worth losing the election for? The hardest hit parts of the US economy just about all voted for President Trump in the last election and have been specifically targeted by Chinese tariffs. Little wonder then that agricultural imports are front and centre in whatever deal is to be announced. With the election less than 13 months away it’s time to at least put the trade war on hold and let animal spirits loose. 

I have to admit I don’t look at the internals of the market all that often because it is the trend rather than the day to day moves which lend some insight into the health of the market. I thought it might be useful to look at some of the most common measures to discern if any clues to market direction are evident.

The Total Number of New 52 Week Highs on the NYSE Index is coming back down towards the lows December 2018 and towards the end of 2015. The significant spike on the upside in late 2017 was an anomaly suggesting a period of underperformance ahead, but generally lows are better predictors of market bottoms than spikes are of tops.

The unusual nature of the forces at play -- and the fact that many of them are geopolitical and emanate from abroad -- makes it more difficult for policy makers to decide how far to go in easing credit.

There’s even a question of how effective rate cuts will be in an economy where business executives fear such dire developments as the breakup of global supply chains.

Powell is expected to deliver his latest thinking on the outlook when he speaks to the National Association for Business Economics in Denver at 2:30 p.m. U.S. East Coast time on Tuesday. He said last week that despite some risks, the U.S. economy is in a “good place,’’ and that the Fed’s job is “to keep it there.’’

Mrs. Treacy’s containers arrived from China over the last few days and I spent most of this morning at Los Angeles port. I have been going to down to the customs warehouses twice a year for four years to help out in the business but also to get a feel for what activity is like at one of the country’s busiest ports of entry.

Multiple surveys show that traders and investors see the U.S.-China trade war as the biggest risk facing markets. Bank of America Merrill Lynch’s latest monthly poll of global fund managers, released in mid-September, revealed that the number of respondents who said trade tensions were the biggest danger outstripped by far those who cited ineffective monetary policy and the potential bursting of the bond bubble. In her first major address as head of the International Monetary Fund, Kristalina Georgieva said Tuesday that the global economy is in a synchronized slowdown, in part due to trade uncertainty. Also on Tuesday, the National Federation of Independent Business said its small-business sentiment index fell to near the lowest level of Donald Trump’s presidency. Even more notable was that the part of the index measuring “uncertainty” plunged to its lowest since February 2016.  “More owners are unable to make a statement confidently, good or bad, about the future of economic conditions,” the group said, with 30% of respondents reporting “negative effects” from tariffs. To cut to the chase, if businesses can’t forecast with any confidence, how can investors or strategists?

U.S. and China trade negotiators are scheduled to meet on Thursday to resume talks. What’s discouraging is that instead of making conciliatory comments, each side seems to be hardening their stances. Chinese officials said Monday that what isn’t on the table from China’s perspective — and never will be — are changes to its laws to protect foreign intellectual property. Later that day, the U.S. placed eight of China’s technology giants on a blacklist over alleged human rights violations against Muslim minorities. In response, China hinted that it might retaliate. Then the news broke that the Trump administration is moving ahead with discussions around possible restrictions on portfolio flows into China. None of this sounds like either side is ready to make a deal.

Political rhetoric amplifying ahead of the start of negotiations have been a trend that has evolved over the last year. Each of the other occasions has ended in disappointment and the market is now pricing in a similar conclusion to the upcoming talks.

The government considers it’s still not clear whether Germany will plunge into a full-blown recession and, as a result, the full array of remedies may not need to be deployed.

Germany’s five leading research institutes slashed their forecasts for economic growth this year and next, citing trade tensions and Brexit weighing on German industry. GDP is to grow 1.1% in 2020 from a previous forecast of 1.8%, and 0.5% this year from an earlier prediction of 0.8%.

Traditionally, Germany shifts to high alert whenever the global economy looks to be slowing -- the country’s dependence on exports means that it tends to head south with the rest of the world. But with the domestic market still relatively robust and the ECB renewing monetary stimulus, Merkel’s economic team judges that this time the path toward recession is less certain.

On the down side, a prolonged trade war could eventually lead to a much bigger fallout than expected, according to another scenario being considered. That spurred the government to gradually increase investments and bolster the labor market as a preemptive and precautionary measure.

Finance Minister Scholz told ARD TV on Wednesday that economic forecasts are pointing toward a recovery and that there is currently no need for a stimulus program.

“We are well prepared because we have good financial resources and can react, should it really come to an economic crisis but so far it’s just slower growth,” Scholz said.

The bond market has been signallng for a while that all is not well in the global economy. The fact that just about all of Germany’s sovereign debt is trading with a negative yield is as much about the outlook for global growth as it is about the ECB’s negative interest rate policy. The Eurozone has been relying on the strength of the export sector to pull growth higher but the slowdown is exposing the absence of a clear domestic demand story to offset the slowdown in demand.

While clear signalling for the end of the austerity program remains unlikely, there is evidence of fiscal laxity creeping in all over the continent. Italy, France and Spain are already engaged in fiscal stimulus and it is only a matter of time before Germany deploys its balance sheet to support the economy.

Just 18% of U.S. households had enough liquid assets to cover the cost of a new car, according to a Wall Street Journal analysis of 2016 data from the Fed’s triennial Survey of Consumer Finances, a proportion that hasn’t changed much in recent years.

Even a conservative car loan often won’t do it. The median-income U.S. household with a four-year loan, 20% down and a payment under 10% of gross income—a standard budget—could afford a car worth $18,390, excluding taxes, according to an analysis by personal-finance website Bankrate.com.

Tesla is likely to introduce a car with a battery capable of lasting for one million miles of driving. Having a car for long enough to come close to even a fraction of that distance could justify taking out a seven-year loan to fund the purchase but that misses the point. The aim is for those batteries to go into autonomous vehicles.

Peloton Interactive Inc. fell as much as 9.5% Thursday after raising $1.16 billion in its U.S. initial public offering, becoming the latest unprofitable startup to fail to win over investors in its trading debut.

Peloton’s shares opened at $27 and were down 7.2% to $26.90 at 12:38 p.m. in New York trading, giving the company a value $7.5 billion. The fitness startup sold 40 million shares for $29 each on Wednesday, after marketing them for $26 to $29.

It marks the third-worst trading debut in 10 years in the U.S. for companies that have raised at least $1 billion, according to data compiled by Bloomberg. The IPO also comes as investors have been rattled by the sudden disintegration of WeWork’s plan to go public in September.

Peloton Chief Executive Officer John Foley said in an interview with Bloomberg Television that he had “some disappointment” about the reception but was confident in his company’s prospects.

The one point that seemed to get very little commentary in the lead up to this IPO was just how fad-prone the fitness industry is. Soul Cycle and spinning are all the rage at the moment. I personally go to at least two, if not three, hybrid cycling and toning classes a week. After 18 months of these classes I am starting to find them monotonous and that is a big challenge for a company that is trying to sell a range of workouts via phone or its enormously overpriced pieces of equipment. I just can’t see why someone would pay $40 to Peloton for online classes when they can pay the same or less at an LAFitness without the capital expense and space requirement of the exercise equipment.

Spurred by a resilient labor market and income gains, the consumer remains the chief source of firepower for economic growth that’s slowed amid fragile global demand, uncertainty surrounding trade policy and lackluster factory output. The report suggests another solid quarter of household consumption, which grew in the April-June period at the fastest pace since 2014.

“At a time when recession risk dominates most economic discussions, the strength of the U.S. consumer is among the more compelling examples of an economy that is still firing on all cylinders,” Tim Quinlan, senior economist at Wells Fargo Securities LLC, said in a report.

The consumer has been largely shielded from the inflationary pressures of the trade war by the lack of duties on imported apparel and some other manufactured goods. That is now changing with new tariffs on these goods being implemented and the wholly domestic factor of rising health insurance costs pushing inflation higher.

You wouldn’t know it from benchmarks, but beneath a tranquil surface violent swings are lashing traders along obscure fault lines. Companies like real-estate firms that rose the most in 2019 are plunging, and some that have trailed are being pushed out front. It’s been a mild reckoning for hedge funds and others who have bet on the status quo persisting.

Amid all the churn has been a renewed focus on a quantitative concept known as factor investing, which groups companies not by industry but traits such as how fast their prices move or profits rise. A question gaining currency in the past few days is whether these categories are just handy descriptions of twists in the market -- or are at some level guiding them.

“It seems very mechanical right now,” said John Swarr, investment specialist at Penn Mutual Asset Management, which has $27 billion under management. “If you look within some of these stocks that are being hit the hardest, some are in much better shape than others and yet they’re all being affected similarly,” he said. “It does feel like it’s a rules-based rotation.”

The total of negative yields bonds was at $17 trillion for a brief time at the end of August and has since contracted to $14.3 trillion. That’s a big more in a little less than two weeks.

The failure of the German government to sell a full allocation of bonds and failed auctions at the US Treasury in August were probably the catalysts for sapping investor demand for bonds globally. The unwinding of leveraged long positions now has the scope for meaningfully move bond yields higher with clear upward dynamics evident across multiple markets.

What is likely to happen to the price of precious metals if a bubble in equities arises for all the reasons that you have stated. Precious metals appear to fall each day that equities perform well. Which sectors/countries are the likely leaders If there is an equities bubble or will we need to wait for the charts to tell us?

Gold has rallied impressively to complete a six-year base. The catalyst for that move was the perception the ECB is about to move interest rates below zero. That spurred a massive move in bonds that has created a situation where $17 trillion in nominal bonds are trading with negative yields in Europe and Japan.

Reserve Bank of Australia comments in 2019/20 corporate plan released on website Friday.

“Over 2019/20 to 2022/23, the structure of the Australian economy will continue to evolve and economic shocks -- which, by definition, are not forecastable -- will occur. Movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets”

“Especially in the context of weak growth in household income, high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks”

“The flexible medium-term inflation target is the centerpiece of the monetary policy framework in Australia and has been well established for more than two decades. Since the early 1990s, it has provided the foundation for the bank to achieve its monetary policy objectives by providing an anchor for inflation expectations. The bank will remain alert to new developments that may have a bearing on the framework for monetary policy”

The Australian Dollar remains in a medium-term downtrend, moving to a new closing low today. With energy and iron-ore prices declining and the domestic housing market in a parlous condition the RBA may be required to embark on the same counter deflationary measures other developed markets have endured over the last decade.

For the first time since 2009, S&P 500′s dividend is yielding more than 30-year Treasury bonds.

The only other similar inversion in the past four decades came in March 2009 — a low point of the financial crisis, according to data from Bespoke Investment Group. But it might bode well for stocks as investors have few other options to find yields.

“For an investor looking to hold something for the long term, it makes equities relatively attractive,” says Bespoke’s Paul Hickey. 

The contraction in government bond yields, globally, have driven demand for higher yielding assets. It has been one of the primary factors in containing risk in the high yield sector and it is also likely to continue to represent a major factor in the ability of the primary indices to continue to hold in the region of their peaks.

With just over two months until Johnson’s self-imposed deadline to leave the European Union with or without a deal on Oct. 31, every day is going to count. And since Johnson wants a new Queen’s Speech to set out his government’s legislative agenda, which is usually followed by five days of debate, it will be more like two weeks of parliamentary time lost.

While suspensions of as much as two months were common in the 19th century, most prorogations of Parliament in recent decades have lasted for less than a week. Johnson’s suspension for 35 days will be the longest since the 1970s, according to the House of Commons library.

The U.K. doesn’t have a written constitution and, within reason, governments can do whatever they like as long as they have a parliamentary majority. But given that a number of ex-ministers -- including former Chancellor of the Exchequer Philip Hammond and Theresa May’s Justice Secretary David Gauke, have already attacked his move, that is far from guaranteed.

Exiting the EU and retaking the ability to set its own rules and regulations is a once in a generation opportunity to recast the UK’s economy as a pro-growth engine for innovation and trade. Grasping that opportunity is the only way the UK will make a success of Brexit, so it is imperative that the raft of measures proposed in September is not simply a commitment to double down on spending without a plan to grow.

So-called tappable equity grew by more than $335 billion during the quarter. The total is 26% more than the mid-2006 peak of $5 trillion. Roughly 45 million mortgage holders have excess equity, and half of them have mortgage rates higher than 4.25%, making a refinance not only possible but attractive. The average rate on the 30-year fixed is now around 3.6%. The majority of these borrowers also have top credit scores.

Falling mortgage rates over the past several months have caused a surge in overall refinance activity, but despite the record housing wealth, homeowners have been highly conservative about taking cash out. In 2006, 89% of refinances were cash-out, according to Freddie Mac. In 2012, when home prices crashed, that share dropped to 12%. But even now, with prices back above their previous peak and mortgage rates much lower, cash-out refinances are just 61% of the total pool of refinances.

“I think you’re seeing a little bit of reluctance both on the side of lenders and on the side of borrowers,” said Andy Walden, director of market research at Black Knight. “If you look at lending, guidelines are a little bit tighter than they were back in 2006, but even given those lending restrictions, I think you’re seeing more conservative behavior on behalf of homeowners as well, as folks have the remembrance of the financial crisis in the rearview mirror.”

I was at an end-of-summer party on Saturday night and conversation turned to mortgage refinancing. About half of the people I was talking with had used low rates over the last 18 months to refinance at about 3.5% while the rest had not done so yet. Mortgage rates have done a round trip from 3.5% to 5% and back again over the last year and there is still scope for the rate to move lower. That is going to put additional cash in the pockets of the people most likely to invest in the stock market.

“You can say we’re having very meaningful talks, much more meaningful than I would say at any time frankly,” Trump said while meeting with German Chancellor Angela Merkel on Monday. “Maybe I’m wrong but we’re in a stronger position now to do a deal, a fair deal for everyone,” he added.

Still, a spokesman for China’s foreign ministry wasn’t able to immediately confirm the details of the phone calls on Monday. Later, Hu Xijin, editor-in-chief of China’s Global Times newspaper, said in a tweet that top trade negotiators hadn’t spoken by phone in recent days and that Trump was exaggerating the significance of the trade contacts.

Trump later, at a separate bilateral meeting, insisted that calls were had at the highest level and was not aware that China was disputing them. U.S. Treasury Secretary Steven Mnuchin, also in Biarritz, said "there were discussions that went back and forth and let’s just leave it at that.”

Let’s look past the rhetoric and repeated announcements of progress and focus instead on the purpose of the trade war. The USA is the current global superpower and China has clearly stated they wish to overtake the USA economically, technologically and militarily. That suggests there is little prospect of relation returning to the status quo of the last 30 years. The question is primarily about the degree of separation which can be achieved without sparking a broader conflict.

“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Powell said in the text of his remarks Friday to central bankers gathered at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “We will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”

It is looking like the learning curve for a newly installed Fed chair is about 18 months. Today’s measured statement from Jerome Powell did an excellent job of placating investor fears while leaving open the optionality of how much to cut by. The Fed has made clear they will cut rates if they need to but will not hurry. However, the simultaneous announcement by China that they are increasing tariffs on $75 billion of US goods is likely to be prove the catalyst for deeper cuts.

We acknowledge that: all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, weakness in demand is now being seen across many modes of transportation, both domestically and internationally.

Although the initial Q2 ’19 GDP was positive, it was not as positive upon dissection, and we see a growing risk that GDP will go negative by year’s end.

The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices, and the decline in interest rates, have joined the chorus of signals calling for an economic contraction.

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When retailers like Wal-Mart, Nordstrom and Target are announcing surprisingly good earnings and Amazon’s Prime Day continues to grow in turnover it is hard to square underperformance of transportation figures. Macy’s remains in a clear, potentially terminal, downtrend and there is still pressure on other brick and mortar chains but I suspect the underperformance of the lower volumes on the transportation index are down to other factors.

At 1.63 billion yuan ($237 million), Alibaba’s share of Ant’s profit was the highest in almost two years. In three of the past eight quarters, Ant ran at a loss or provided zero earnings to Alibaba, according to the data. Despite this uptick, Ant’s contribution to Alibaba’s bottom line remains minor at around 7% of operating income. It could shrink again if Alibaba’s e-commerce business dwindles.

Yet Ant has plans to expand its reach throughout China’s economy, including moves deeper into wealth management and other financial products. This could make it relatively robust against any weakness in online and offline commerce should a macroeconomic slowdown continue. 

Given Alibaba’s moves to broaden its business into offline shopping, cloud computing and entertainment, investors may not need to get panicky about retail just yet. But when that time comes, Ant may have grown large enough to shine a bright enough light across the rest of the business. 

Both Amazon and Alibaba are discovering that the future of retail is a hybrid online and bricks & mortar experience. That is not what investors believed would be the case when they accepted massive valuations. The theory was the high costs of physical infrastructure on the high street would be replaced by smaller workforces and remote warehouses. The truth is we need both and that comes at a cost. The benefit both companies have is they are in a better position to provide this kind of hybrid experience than many established retailers.

Second, production costs between countries are converging, in part due to all of the globalization that has already happened. Demonstrating this, U.S. wages have managed only limited growth in recent decades at the same time that Chinese wages have surged. The result is greater competitive parity: the savings from producing something in China and selling it to the U.S. have shrunk. A more homogenous world simply doesn’t need to trade as much.

Third, prior trade tailwinds have faded. All of the grand trade achievements of the past several decades – NAFTA, the EU, the opening of ex-Soviet bloc countries and China – have now been mostly absorbed into the global economy. Few major countries remain outside the global economic system, waiting to jolt the world forward with their entry. In turn, there is no reason for trade growth to continue substantially outpacing economic growth. To be sure, there are still a smattering of new free trade agreements being struck, but they are fewer in number, and by definition smaller in achievement given that tariff rates had already been whittled down by prior efforts (Exhibit 3).

Fourth, and finally, there are new trade headwinds now blowing from the spate of populist governments recently installed around the world.

A link to the full report is posted in the Subscriber's Area.

The magnanimous ideal of giving up antiquated industries in service to building a global economy which could lift millions of people out of poverty is something the whole world got behind.

There are two very big questions we have to answer which are fundamental to the construction of a long-term portfolio. The first is does governance really mean anything? The second is how do you value private assets in a portfolio?
 
At this service we have long held that governance is everything. Is that still true? Ray Dalio appears to be agnostic on whether property rights, respect for minority shareholder interests, an independent judiciary and a free press are important. What I personally find particularly interesting is that the performance of China’s stock market, during the decade where it has achieved the heights of its ambition has been dismal.

Latest reports have highlighted a distinct slowdown in growth in the housing sector since the start of the year. Despite a clear need for more houses this is not converting to actual sales. In fact, price drops have become commonplace in the second-hand market, and sales of properties over €500,000 have shown a 21 per cent drop since the start of the year.

All of this points to an affordability issue for buyers, and a gradual market realisation that prices need to be adjusted accordingly. Add to this fears over Brexit and Central Bank mortgage lending restrictions and the slow 2 per cent growth in number of mortgage drawdowns in the first quarter begins to make sense. Compare this with growth rates in 2018 of about 20 per cent.

Meanwhile, the throughput of housing stock for sale is strong. “June and July have been unseasonably strong with the flow of stock coming through,” said Angela Keegan, managing director of property website MyHome.ie. “It’s possible people are more confident about the market because, remember, if they are selling they are buying too. We know interest rates are not going up in the near term and there are excellent fixed-rate mortgages available too.”

Declining demand for higher priced homes suggests consumers and investors are trimming their expectations for continued economic strength. There is no country likely to do worse from a hard Brexit than Ireland.

It will be for historians to parse whether the backstop gambit was an historic mistake or a masterful stroke. Meanwhile the stock market is rolling over and the housing market is softening. That occurring against a background where interest rates are close to zero and the ECB is about to restart QE.

South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.

U.S. Secretary of State Michael Pompeo met his counterparts from both countries Friday, but the dispute, which simmered for months as the Trump administration sat on the sidelines, looks set to worsen amid protests, boycotts and economic warnings. “By bringing economic sanctions, they’ve really escalated it to another level,” said Robert Dujarric, director of the Institute of Contemporary Asian Studies, Temple University, Japan. “This isn’t going to make South Korea cave in. If anything, it heightens South Korean nationalism. It makes it harder to de-escalate and harder to have a ‘united front’
against China.”

Japan and South Korea compete in many of the same export markets and their rivalry had previously been contained by the global trade network but the historical enmity between the two countries is never far from the surface. The advent of trade wars, mercantilist competition and shifting loyalties is introducing a degree of uncertainty in the region that hasn’t been seen in decades.

Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.

The sheer scale of China’s manufacturing operations is not going to be easily repeated elsewhere. However, no one ever thought China would achieve the manufacturing might it now possesses either. The history of major manufacturing hubs is they evolve where labour, land, transportation and electricity are cheapest and where the tax and regulations are most lax.

The pound fell more than 1% against the dollar to its lowest level since 2017 on fears of a no-deal Brexit. But Johnson insisted a deal was possible.

"We’re very confident, with goodwill on both sides, two mature political entities, the U.K. and EU, can get this done,” Johnson told a TV crew during his trip to Scotland. "It’s responsible for any government to prepare for a no deal if we absolutely have to. That’s the message I’ve been getting across to our European friends. I’m very confident we’ll get there.’’

The key point for the EU to understand is that the backstop is "dead," along with Theresa May’s withdrawal agreement, but there is "scope to do a new deal." Johnson said the U.K. government is talking to Irish government on Monday, to set out "the limits" and aims for a new deal.

And

Conservative Member of Parliament Oliver Letwin, part of a rebel group that includes some Labour MPs seeking to stop a no-deal Brexit, said his colleagues could find a way to amend legislation to prevent the U.K. leaving with no divorce agreement.

“The mechanical problems we can overcome,” Letwin told BBC radio. “The difficult thing is to get a majority in Parliament for some other course of action at the last moment if there isn’t a deal.” Letwin said there is a “natural majority” of parliamentarians against a no-deal Brexit, but whether they would vote to block it would remain unknown “right up until the last moment.”

Investors are pricing in the escalation of brinksmanship between the UK and EU. The UK negotiating team has no choice but to amp up preparations for a hard exit because to do anything else would be to harm the façade they are trying to create of a clear intention to leave. Of course, they might be serious, but if the machinations of parliament tell us anything, it is all well and good to have strong convictions but you still need a majority to push it through the Commons.

Fitch Ratings Ltd. followed on Friday by cutting its outlook for Africa’s most industrialized economy to negative. JPMorgan Chase & Co. said the same day that a rally in the rand since the start of June was more to do with a supportive global environment than improvements in conditions locally.

“We now believe levels are stretched enough to enter outright rand shorts,” JPMorgan analysts including London-based Anezka Christovova and Robert Habib in New York said in a note. “South Africa’s fundamental picture remains very challenging with a ballooning fiscal deficit and structurally low growth.”

Citigroup Inc. recommended to clients on Monday that they short the rand against the Turkish lira. The Wall Street bank’s analysts see the latter strengthening about 7% versus the South African currency over the next three months.

The mismanagement of utilities in emerging markets whether in South Africa or Venezuela is often one of the most apparent signs of low or deteriorating standards of governance. Utilities provide essential services but are mostly state run, they have reliable cashflows and the cost of upkeeping vital pieces of infrastructure can be delayed for years without apparent loss of service. That makes them perfect candidates for political rent seeking or theft.

There are signs that Asia’s export slump is bottoming out. That’s according to Goldman Sachs Group Inc. economists who highlight a substantial pick up in exports to the U.S. from Asian economies including Taiwan, Vietnam and India that’s effectively canceling out the fall in shipments from China.
 
“Initial shocks from the trade war might be behind us, with Asian exports to China recovering and tech exports catching up with stable non-tech exports,” Goldman economists led by Andrew Tilton wrote in a note. “Also, a rebound in the Asian trade cycle seems overdue, with Asian exports undershooting trade partners’ activity growth and the current downturn being sustained longer than past cycles.”

Chinese and American trade negotiators meet again in Shanghai this week for the first round of meetings between both sides since talks broke down in May.

Even if trade tensions escalate, an expected wave of supportive measures from governments and central banks to underpin economic growth will aid the trade recovery, Goldman argues. The Federal Reserve is tipped to cut interest rates this week for the first time in a decade.

For sure, additional U.S. tariffs on Chinese goods would have an impact. “Our view is, however, that the escalation would likely be temporary ahead of an eventual trade agreement, and potential damages could be mitigated by ongoing shifts in supply chains,”

Goldman’s economists wrote. “In the event of further escalation in the trade tensions beyond our baseline, Asian trade may undergo another downturn which, if sustained for the coming year, could make the current downcycle the longest since the 1990s.”

Is global growth troughing? That is one of the biggest questions for investors right now. There is no doubt that slowdown risks have been a major factor in investor sentiment over the last year and that has prompted a massive response from both governments and central banks and is a good part of the reason nearly $14 trillion in bonds are trading with negative yields.

The strong report comes one year after longtime leader Howard Schultz retired from the chairman’s job and left the company, putting decision-making squarely in the hands of Chief Executive Officer Kevin Johnson, who’d been in the post for about a year at that point. Johnson got right to work, bringing life back to an aging brand that had started to lose its cachet among the hipper, smaller chains sprouting up in its shadow.

His playbook included closing underperforming locations in densely penetrated U.S. markets, turning over some foreign regions to licensees and revamping the chain’s loyalty program. He has also expanded food offerings to compete with trendy salad shops and found ways to launch the new drinks that Gen Z and millennial customers want, like Nitro cold brew and high-protein offerings, in as little as 100 days. In the past that may have taken up to 18 months.

The strong performance of Starbucks, McDonalds and Beyond Meat highlight the fact that small changes to menus which gel with consumer demand can have an outsized impact on results as customers re-engage with the brand. Whether that is protein-infuse drinks at Starbucks, better breakfasts at McDonalds or vegetarian offerings at fast food restaurants, these new product offerings have revitalised interest and highlight the strong cashflows of consumer- oriented companies.

“But if demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further,” he said. “Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates. On current projections, it will be some time before inflation is comfortably back within the target range.”

Lowe’s speech, which made the case for maintaining the RBA’s current policy framework despite prolonged low inflation, was his most explicit that further easing remains on the table. The Reserve Bank cut rates in June and July to a record low of 1% and signaled at the time that it would wait to see how the easing filtered through the economy.

Since then, consumer confidence has actually fallen and the currency has risen -- the latter due to an easing bias among major central banks -- in contrast to RBA’s hopes. Indeed, the Federal Reserve is expected to cut as soon as next week. Westpac Banking Corp. Chief Economist Bill Evans on Wednesday predicted Lowe and co. would cut in October and February to push the cash rate to 0.5%.
 

Australia’s administration is attempting to forestall the decline in domestic property prices by cutting interest rates, embarking on an aggressive fiscal stimulus and implementing direct supports for the property market.

Since the referendum, he has retreated from public politics, offering only the occasional blog post, often thousands of words long, setting out his views about government, technology and educational systems, but especially on why he believed the government was making a mess of Brexit.

His tone was often contemptuous: Brexit Secretary David Davis was “thick as mince, lazy as a toad and vain as Narcissus.” Pro-Brexit MPs were “useful idiots” who spent their time “spouting gibberish.”

In 2018 he described Theresa May’s approach to Brexit as a “surrender” and said that Article 50 -- the divorce process with the EU -- was triggered too early, akin to “putting a gun in your mouth and pulling the trigger.’’ He said the success of Brexit won’t be known for decades, and tweeted in 2017 that there are “possible branches of the future’’ where leaving will have been an error.

Cummings’s main thesis is that Britain’s system of government is “systematically dysfunctional” and designed to keep the U.K. as closely tied to the EU as possible. He’s called for a radical shake-up of Whitehall, saying Brexit cannot be delivered without it.

As I’ve said on many occasions before, the only way to negotiate is to project a credible argument that you are willing to walk away if you do not get what you want. In a two-way negotiation, where the opposing party believes they have a superior position, it is the only price discovery tactic that has any hope of working. It finally appears the UK administration has got the message.

The US Trade Weighted Broad Dollar Index continues to trade in the region of its all-time peak. A sustained move below 125 will be required to signal more than temporary resistance in this area.

The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money. Revenue at eight of Europe’s top lenders is set to decline 2.7% on average from a year earlier, according to filings and analyst estimates. That compares with a 0.5% gain for the top U.S. peers, many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015.

“The focus for European banks is really on revenue,” said Jonathan Tyce, an analyst at Bloomberg Intelligence. “Rates are set to go down, which means lower loan loss provisions, but that doesn’t make up for the loss in revenue. All this keeps bringing you back to costs.”

And here is a section on Deutsche Bank

Deutsche Bank (July 24) unveiled its biggest overhaul in decades this month, including a plan to exit its underperforming stock trading business. The move was partly driven by low interest rates and the company now assumes that European short-term rates will rise to just 0% in 2021. Deutsche Bank also offered insight into second-quarter earnings with a 5.9% slide in revenue. Costs and profit figures fell short of expectations, even before the bank said it expects 3 billion euros of restructuring charges in the period. Deutsche Bank says about 75% of the investment banking businesses it wants to keep will have a top five market position, and the release this week will 

The basic business model of banks, borrowing short-term to lend long-term, doesn’t work if there is no spread. It is complicated by negative deposit rates which see banks pay a fee to sustain Tier 1 capital ratios. The most LTRO program was paltry in comparison to the previous one and therefore represented a tightening of credit conditions for European banks.  This week’s earnings announcements will give us some insight into how they are faring.

Can you please expand on this statement from Friday's commentary:

"There is potential we are currently at the trough in global growth which could support the stock market in its breakout."

Expectations for global growth has been pegged back on successive occasions over the last 18 months as the trade tensions rose between the USA and Canada, Mexico, the EU, Japan, South Korea and most pointedly with China. More recently, the increasingly taut relationship between Japan and South Korea has been making headlines.

Regarding the Allen Brooks piece on Climate change. I have to say I find the benign conclusions of the report totally unconvincing. Over the years I have read widely on the subject and have been especially impressed by the publications and books of one of the most eminent climate scientists whose work goes back more than 50 years. I refer to Professor James Lovelock. In a recent BBC interview, he suggested that global warming may be entering an acceleration phase. As I write this reply a news story has just announced that a high-pressure dome is due to affect the Eastern states of the US with predicted city temperatures likely to exceed 40 deg C. The simple fact is that you cannot expect hydrocarbons that have been trapped in the Earth’s crust over many millions of years, to be exploited by man over a few decades with the bye products going into the atmosphere, without grave consequences.to follow. Globally we have just experienced the hottest June ever and significantly Siberia has been 7 deg C above normal for the time of year. I mention this in respect of the melting permafrost which is now releasing methane in significant amounts. A gas thirty times more significant than CO2.as a greenhouse gas Of course this topic is an extremely emotional one, simply because the decisions made now on how we collectively proceed could not be more important. On balance I think I would go with the IPCC and James Lovelock. His books on Gaia theory, by the way, are worth reading

Thank you for this email which may be of interest to others. Higher median temperatures and more humid conditions in some areas than we are accustomed to are a fact. Coral bleaching and marine calcification are also facts we cannot dispel. Pollution of our rivers, lakes and oceans, desertification following logging and rapid expansion of cities to accommodate billions more people all represent significant challenges that need to be dealt with.

You may have seen this but thought it worth sending as it has potentially big impact for us Aussie’s.

Thank you for this article which I’m sure will be of interest to subscribers. Here is a section:

Wilson, however, says that given Australia's funds have accumulated such a large stock of foreign assets, an aggregate decision of super funds to hedge their exposure will result in flows that will be twice as large as a percentage of GDP.

And it is the hedging of those exposures that is becoming a more relevant focus for market participants and policy makers

"A 10 percentage point shift in super fund hedge ratios was equivalent to a flow of 1.5 per cent of GDP in 2013. This is now 3.5 per cent."

It is therefore plausible that strengthening in the Australian dollar could trigger a "scramble to hedge" particularly among performance ranking obsessed super funds.

"A discrete increase in hedge ratios by Australian super funds now has the capacity to overwhelm the underlying outflow."

Australia, Wilson says has actually built up a "significant stock of foreign currency exposure" – well in excess of $1 trillion, or the equivalent of or 60 per cent of GDP.

That is because the banks, which borrow heavily from offshore, hedge the currency risk of virtually every dollar they raise, while super funds are prepared to take on more foreign exchange exposure.

You are pushing out the door the risk, but part of this risk comes back in through the window,” said Massimo Famularo, a Milan-based adviser on bad-loan deals.

The ill-health of Europe’s banks is a drag on the economy and a factor for why the area has yet to fully bounce back from the crisis. When banks retain exposure to bad loans rather than selling them outright, they have less capital to back fresh lending to the economy.

Lending growth has been weak in countries with the most nonperforming loans, or NPLs, such as Italy, Portugal and Greece.

“The sale of NPLs is good for the balance sheets of the banks, but it doesn’t solve the NPL problem in the system,” says Giovanni Bossi, former chief executive of Italy’s Banca IFIS SpA. He estimates only a small portion of the disposed loans has been worked out by their buyers.

The nonperforming loan problem in Europe is half the size it was at the height of the crisis. There are two ways of looking at this development. The first is the easy to exit loans have been dispensed with, so the second half must be stickier and, therefore, harder to deal with. The other is that real progress is being made but it is not as quick as many would like.

The beleaguered U.K. currency is finding few backers, with both leveraged funds and asset managers increasing their pound short positions, according to the latest data from the Commodity Futures Trading Commission. Deutsche Bank AG’s global head of currency research George Saravelos said the currency is not cheap enough, even after its recent slide, and that there is now close to a 50% chance of a hard Brexit.

The president-designate of the European Commission, Ursula von der Leyen, said she was ready for a further extension of the Brexit deadline “should more time be required for a good reason.” However, a meeting of Brexit negotiators last week was one of the most difficult of the last three years, according to European officials, as they brace for talks to become more hostile under the next British government.

Johnson and Hunt, who have long said they want the Irish backstop renegotiated, appeared to limit their room for compromise in a debate late on Monday.

“This leaves only two options, no-deal Brexit, or no Brexit,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG. “As both Johnson and Hunt have made clear they want Brexit, chances of a no-deal Brexit are rising.”

The members of the Conservative Party who vote on leadership contests demand a hard line on Brexit so that is what the candidates have offered. Showing a willingness to walk away is a basic component of any negotiation so a hard Brexit needs to be an option. The biggest question is what the new leader is going to deliver once the mantle of power comes to rest on his shoulders. The EU has stated they will not reopen negotiations so the question is what sweeteners they will offer and whether that will be enough to get a deal done.

“U.S. clients are definitely very, very worried,” Fung said in an interview with Bloomberg. “Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried,” he said, referring to the scale of tariffs threatened on all Chinese imports to the U.S. by President Donald Trump.

Though Fung didn’t specify Walmart by name, the U.S. retailer is the company’s second-biggest customer after Kohl’s, accounting for 7.6% of revenue, according to Bloomberg data. A spokeswoman for Walmart declined to comment.

The size of China’s manufacturing sector dwarves that of any other country and therefore the migration of US business is hitting choke points because of a lack of infrastructure elsewhere to deal with the demand. That represents a once in a lifetime opportunity to spur manufacturing in cheaper locations like India and Africa to pick up US business.

The house in Tolleson is one of several thousand around the city that Opendoor and two competitors—listings giant Zillow Group Inc. and Offerpad Inc.—have bought since 2014 in an attempt to perfect programmatic house flipping. Last year, they bought nearly 5,000 houses in the metro area, roughly one in every 20 existing homes sold. They’re after real-estate transaction fees and anything they can make on reselling the property. Margins are low, so volumes must be high.

The majority of mortgage lending in the USA is performed by non-bank lenders i.e. shadow banks. These kinds of highly leveraged business models work in an upswing but tight margins, acute price sensitivity represent significant medium-term threats. Then there is the fact that by running a volume model, real estate AI companies are contributing to flow but could suffer in a downturn as liquidity evaporates.

The number of euro-denominated junk bonds trading with a negative yield -- a status until recently associated with ultra-safe sovereign borrowers -- now stands at 14, according to data compiled by Bloomberg. At the start of the year there were none. Cheap money policies since the financial crisis have kept interest rates at, or near, all-time lows for the last decade.

That’s prompted many investors to buy riskier assets that yield enough for them to meet their liabilities, driving bond markets higher and yields lower. The European Central Bank said on Monday it’s ready to add more stimulus to the euro zone, indicating that an end to the age of ultra-low borrowing costs is far from over.

Wimbledon is on the TV and the air conditioning is humming so we are definitely in summer but negative yield on junk bonds suggest we are in silly season.

Negative yields on a sovereign can be at least partially justified by their appeal as safe havens. Junk bonds carry that moniker because of the unreliability of cash flows. It took me a while to corroborate the claims made in this article and while I could not find negative yielding bonds for all of the issuers there are definitely instances of junk bonds that have been bid up to these levels.

Many of the Uber’s we used to get around Columbus had cracked windshields. Generally speaking, insurance covers windshields but that may not be the case with a ride-hailing service. I don’t know enough about it to make a judgement. More than a few claimed it was because of all the grit on the road from construction but that does not explain the number of cars with cracked windshields that had not been fixed.

Hours after unexpectedly forcing out the central bank’s governor, Turkish President Recep Tayyip Erdogan made clear that he expects both the successor and the rest of the establishment to toe the government’s line on monetary policy.

The decision to dismiss Murat Cetinkaya, whose four-year term was due to end in 2020, was announced in the early hours on Saturday following a pause in interest rates that lasted for over nine months. Deputy Governor Murat Uysal was named as a replacement. Investors weren’t impressed -- the lira slid more than 3% in early Asian trading before paring losses.

During a closed meeting after the decree came out, Erdogan told lawmakers from his ruling party that politicians and bureaucrats all need to get behind his conviction that higher interest rates cause inflation, according to an official who was present. He also threatened consequences for anyone who defies the government’s economic policies, the official said.

Erdogan’s office of communication didn’t respond to calls and text messages seeking comment. “By abruptly dismissing Cetinkaya, Erdogan reminded everyone who is in charge of monetary policy,” said Piotr Matys, a London-based strategist at Rabobank.

Governance is everything and when you have an autocrat in power who is resorting to progressively more desperate measures to hold onto power there is a problem. Losing the re-run election for mayor of Istanbul, a couple of weeks ago, was a wake-up call for Erdogan. That’s a position he once held himself and retaining control of the largest city is essential if he wants to hold onto power. That is probably what precipitated the ouster of the central bank chief.

In moving from Washington to Frankfurt, Lagarde will be tasked with driving monetary policy in a 19-nation economy which Draghi has already signaled will need more help, likely in the form of lower interest rates and possibly with the resumption of quantitative easing. Inflation is running at barely half the ECB’s goal of just under 2% despite years of negative rates and 2.6 trillion euros ($3 trillion) of bond purchases.

Investors will likely bet that as a seasoned crisis-fighter, Lagarde will share Draghi’s taste for aggressive and innovative monetary policy, especially as her appointment means the more hawkish Bundesbank President Jens Weidmann misses out.

Financial markets are already pricing an ECB rate cut by September, in line with predictions by ECB watchers at Bloomberg Economics and Goldman Sachs Group Inc.

Lagarde last week described the world economy as hitting a “rough patch” and advised central banks to continue to adjust their policies in response. In June 2014, she said she would “certainly hope” the ECB would conduct QE if inflation stayed sluggish -- months before it announced it would do so.

Christine Lagarde fits the bill of a credible dove. Her candidacy ensures the ECB is moving back toward quantitative easing and negative interest rates. That’s good news for the liquidity fuelled bull market.

The deflationary cancer is now so deeply lodged in the eurozone that it would take helicopter money or People's QE -- monetary financing of public works -- to fight off any future global slump. Such action would violate the Lisbon Treaty and would test to destruction Germany's political acquiescence in the euro project.

In truth QE in Europe has always worked chiefly through devaluation. The euro's trade-weighted index fell 14 percent a year after Mr. Draghi first signalled in 2014 that bond purchases were coming. That was powerful stimulus. When the euro climbed back up the eurozone economy stalled.

It takes permanent suppression of the exchange rate to keep euroland going. As the Japanese have discovered, it is very hard for an economy with near zero inflation and a structural trade surplus to stop its exchange rate from rising unless it resorts to overt currency warfare. That is exactly what Mr. Trump is not going to allow.

Every avenue of monetary stimulus is cut off in the eurozone. Only fiscal stimulus a l'outrance -- 2 or 3 percent of GDP -- will be enough to weather a serious crisis. That too is blocked.

“The ECB has masked the fragility over the last seven years and nobody knows when the hour of truth will come,” said Jean Pisani-Ferry, economic adviser to France's Emmanuel Macron and a fellow at the Bruegel think tank.

“There is no common deposit scheme for banks. Cross-border investments are retreating. The vicious circle between banks and states could come return any moment,” he said.

Mario Draghi's rhetorical coup in July 2012 worked only because he secured a partial approval from Germany for the ECB to act as lender-of-last resort for Italy's debt (under strict conditions). That immediately halted an artificial crisis. The situation today is entirely different. The threat is a deflationary slump. The ECB has no answer to this.

Markets thought they heard a replay of "whatever it takes" in Mr. Draghi's speech and hit the buy button. But economists heard another note in Sintra: a plaintive appeal for EMU fiscal union before it is too late.

The exhausted monetary warrior was telling us that the ECB cannot alone save the European project a second time.

It is arguable how much the USA needs an interest rate cut with full employment, compressed bond yields and a consumer which is in rude health. Low yields are spurring a mortgage refinancing binge and the decline in oil prices is also putting money in people’s pockets.

When we contemplate the market’s assessment of commodities versus stocks, we find the former, which includes oil and gas, to be at the lowest valuation point in at least 50 years.  Does this mean that the commodity market it being disrupted?  Peak valuation points occurred in 1973-74, 1990 and 2008.  Each peak was associated with spikes in oil prices caused by geopolitical events such as the Arab Oil Embargo, the First Gulf War and the Global Financial Crisis, which happened as oil prices traded in excess of $100 per barrel.  Likewise, each low has been associated with low oil prices – either absolute lows, or lows below more recent oil price ranges.  

With respect to the low points in the valuation of commodities versus stocks, the prior two lows were marked by excess stock market speculation about super-growth stock future earnings.  The 1998-99  Dot.com Bubble, which saw companies brought public with barely any revenues and no earnings, but lots of “eyeballs” on web sites or clicks on shopping sites, happened to also be associated with oil prices falling to $11 per barrel as the Asian currency crisis unfolded and a brief global recession occurred.  The 1970-73 low was marked by the market bubble created by the Nifty-Fifty growth stocks, as price-to-earnings ratios for these 50 super-growth companies soared to ratios in excess of 50 times next year estimates for earnings per share.  Of course, two energy service companies – Schlumberger Ltd. (SLB-NYSE) and Halliburton Companies, Inc. (HAL-NYSE) – were part of this Nifty-Fifty stock group.  Crude oil prices at that point were in the $3 per barrel range, and there was a battle brewing between the seven largest global oil companies that ruled the international oil business and the Organization of Petroleum Exporting Countries over the value of a barrel of oil for tax and royalty calculations.  That tax battle lit the fuse that exploded after the Yom Kippur War involving Israel and Egypt in 1973, leading to the Arab Oil Embargo and the explosion in global oil prices.  

A link to the full report is posted in the Subscriber's Area.

This ratio has been doing the rounds of pundit commentary for the last couple of years because commodities are trading at a such a record low level relative to stocks. Jeff Gundlach in particular has been predicting a resurgence in commodity prices because of their relative discount to stocks and one of the reasons private equity has been so interested in the energy space is because of the relative discount to equities on offer, coupled with the prolific production profiles (and early payback) of unconventional wells.

I am enjoying the commentary as usual. 

I had two questions for which I would be grateful for your opinion:

I don't understand why gold should be priced differently in different currencies. One would have thought that the market would arbitrage out the differences. 

The second one is more general and applies to looking at long term trends such as that for oil versus the stock market. Could it not be argued that technology changes such as the advent of green energy or electric cars or indeed new modes of producing oil (fracking, oil sands etc) render these charts ineffective as predictors of future price action?

I thank you and look forward to hearing from you in due course. 

Thank you for these questions which I’m sure will be of interest to other subscribers. Gold is a commodity and subject to supply and demand fundamentals just like everything else but it is also a monetary metal. That means it tends to trade more like a currency than a commodity.

ECB President Mario Draghi appeared to set a low bar for action on Tuesday when he said additional stimulus will be needed “in the absence of any improvement” to the outlook for growth and inflation. He specifically cited rate reductions as an option, sending the euro lower and prompting money markets to price in a 10 basis-point cut by December.

Investors subsequently brought forward their expectations to September after Bloomberg’s report. Commerzbank now predicts such a policy step in July.

“Draghi is going to finish his tenure with a cut,” said Claus Vistesen, chief euro-zone economist at Pantheon Macroeconomics. “The door is now open and I don’t see how they can not walk through it.”

There is a first principles question that governments have no appetite to grasp. “How do you recover from a debt bust?” We know what the answers are. You default, recapitalise and try not to make the same mistake again. The problem in Europe is the creditors are Northern European pension funds and the debtors were peripheral banks, who have had much of their debt absorbed by their respective governments. The prospect of debt forgiveness, therefore, has massive issues of moral hazard and was untenable politically, even though it remains necessary if the debt mountains are to be dealt with and growth prospects renewed.

A link to the slides is posted in the Subscriber's Area.

This is a robust defense of Shiller P/E which, at 30, is at it second highest peak in history; surmounted only by the Tech Bubble. Let’s for a moment consider that it would be unwise to expect the best performers of the last decade to be the best performers of the next decade. After all, it only makes sense when we consider the base effect. It is obviously more difficult to double from a market cap of $1 trillion than from $1 billion.

That’s all put the economy on track for its weakest fiscal year since the last recession in 1991. Even the Reserve Bank, which rarely wades into political territory, is urging more government stimulus after cutting interest rates for the first time in almost three years.

But whether boxed in by his sunny disposition or pledges to deliver a budget surplus made ahead of the government’s shock re-election last month, Frydenberg appears unfazed. While he’ll push to pass tax cuts when parliament resumes on July 2 and ramp up infrastructure spending, that’s about it, leaving the heavy lifting of stimulus to the central bank.

“I’ve found the treasurer to be remarkably sanguine,” said Danielle Wood, an economist at the Grattan Institute, an independent think tank in Melbourne. “When you’ve got the central bank governor coming out and talking about perhaps moving to stimulatory fiscal policy as well as the need for more long-term structural reforms, I’d be hoping for a more substantive response.”

The RBA cutting interest rates to previously unimagined levels, with more to come, is a bonus for consumers with floating rate mortgages, but the wider concern is about the health of the Chinese economy which Australia depends on for export demand growth.

Africa, largely ignored in a U.S.-China trade war that could roil economies worldwide, is quietly piecing together the world’s largest free-trade zone.

The African Continental Free Trade Area comes into force on paper on Thursday after the required 22 countries ratified the deal a month ago. Once it’s passed by all 55 nations recognized as part of the African Union, it would cover a market of 1.2 billion people, with a combined gross domestic product of $2.5 trillion. The potential benefits are obvious, if the usual hurdles of nationalism and protectionism don’t yet stand in the way.

The deal would help the continent move away from mainly exporting commodities to build manufacturing capacity and industrialize, said Jakkie Cilliers, head of African Futures and Innovation at the Pretoria-based Institute for Security Studies. Boosting intra-regional trade would spur the construction of roads and railways, reducing the infrastructure gap in Africa, he said.

Africa is the global centre for population growth and represents an important demographic growth engine for the global economy over coming decades. The creation of a free trade area to promote transnational trade right across the continent is a positive development that will help spur growth for many economies.Building up trade that is not exclusively reliant on resource extraction is a major objective for just about every commodity producer but it is especially important in high population growth markets because people need jobs if their productive capacity is to be realised. That’s a long-term objective.

Understanding what is happening on the border is difficult because, while the numbers are currently higher than they have been in several years, they are nowhere near the historic levels of migration seen across the southwest border. Arrests for illegally crossing the border reached up to 1.64 million in 2000, under President Clinton. In the 2018 fiscal year, they reached 396,579. For the first five months of the current fiscal year, 268,044 have been apprehended.

The difference is that the nature of immigration has changed, and the demographics of those arriving now are proving more taxing for border officials to accommodate. Most of those entering the country in earlier years were single men, most of them from Mexico, coming to look for work. If they were arrested, they could quickly be deported.

Now, the majority of border crossers are not single men but families — fathers from Honduras with adolescent boys they are pulling away from gang violence, mothers with toddlers from Guatemala whose farms have been lost to drought. While they may not have a good case to remain in the United States permanently, it is not so easy to speedily deport them if they arrive with children and claim protection under the asylum laws.

Families with children can be held in detention for no longer than 20 days, under a much-debated court ruling, and since there are a limited number of detention centers certified to hold families, the practical effect is that most families are released into the country to await their hearings in immigration court. The courts are so backlogged that it could take months or years for cases to be decided. Some people never show up for court at all.

Families with young children immediately require services and are a long way from self-sufficiency. That represents a challenge for border facilities never designed to handle the numbers of people seeking admission. It effectively means that anyone turning up at the border is given leave to remain in the USA.

There is some evidence of that happening, even with the previous, smaller tariffs. Since the third round of U.S. tariffs on China went into effect in late September, U.S. imports from China have faltered. An 8% growth rate in October turned to an 18% decline on the year in March. Yet import growth from Taiwan has risen from 12% to 21% over the same period. Imports from Vietnam grew 34% in March, up from a 15% rate in October. And imports from South Korea also surged in the first quarter: They were up 18% on the year, against just 9% in the fourth quarter of 2018.

Some of those shifts might represent manufacturers in China rerouting goods through neighboring countries. Chinese export growth to Southeast Asia and Taiwan accelerated in the first quarter of 2019, even as its overall export growth slowed. Regardless, the result is probably more expensive goods in the U.S. and lower employment in China, as Chinese companies shift elements of supply chains across borders or lose market share to pricier but tariff-free Asian competitors.

Many U.S. policy makers would argue that some pain for U.S. households is worthwhile if it achieves broader strategic goals. In the meantime, however, the big winners from the Sino-U.S. trade conflict are still across the Pacific.

In the cryptocurrency world, “trust” is the buzzword. It occurs to me it is also the primary asset which has been lost in the pursuit of the trade war. The USA and other countries were willing to tolerate China’s misdeeds for years until the populist revolution highlighted just how much damage had already been sustained by the middle classes. Now the unfair trade practices and theft China has engaged in are no longer being tolerated and normal trade practices are being demanded. China is not in a position to accept those terms and that is setting up the conditions for a protracted disagreement which is likely to ebb and flow for years.

According to the new parliament’s seat distribution based on preliminary results, 15 PINE parties throughout the European Union made gains in the election and 12 lost seats. In total, they gained just 25 seats – 3.3% of the total of 751. Without Italy, they would have come out even with the 2014 result. In a small number of countries there has been no change in PINE support.

The rise of Italian nationalism and what one could call an anti-establishment revolution there make the country the EU’s biggest trouble spot for the next legislative period. It’s unclear what the bloc can do about it except wait for Italians to become disappointed in Matteo Salvini’s League (and the national conservative Brothers of Italy, or FDI, party) – something that might come with painful economic side-effects.

The U.K. is the other obvious problem, but perhaps a receding one – either because Brexit will eventually happen or because it won’t. Last week’s election delivered a net loss of seats to British PINE parties. The success of Nigel Farage’s Brexit Party was as spectacular as the downfall of his former project, the U.K. Independence Party, and the ruling Conservatives faced a catastrophic loss that doesn’t augur well for them in the next general election. All this is for the British voters to sort out, though: The EU can hardly help at this point and it’s wise for it to wait out the crisis.

Other than the two obvious hot spots, eastern Europe remains somewhat problematic for the “ever closer union” project because of the strength of Hungary’s Fidesz and Poland’s Law and Justice (PiS). These aren’t exactly euroskeptical parties, but they are focused on not giving up any more national sovereignty, and they’re resolutely illiberal. The parties work to defang the independent media and build up propaganda machines that make them immune to scandals (PiS survived a whole strong of them in the run-up to the European election) and they tighten the political control of the courts.

The European election results reflect a rumbling sense of discontent but did not deliver the ground swell of support for populist or ant-EU to upend the centrist status quo. If we look under the surface there is a clear battle going on, but the opposition is split between populists and, the left leaning, Green movement which has allowed the centrist bloc to continue to hold sway.

Last October there was a full hike priced in, but now those expectations have completely collapsed to the point where there is two cuts already embedded into the Eurodollar futures curve.

Although it’s not quite this simple, to make money at the short end, the Fed will have to cut more than twice in the next year and a bit. Could that happen? For sure. No doubt about it. Maybe the economy hits a real air pocket and the Fed cuts aggressively. Or there is some geopolitical event and the Fed is forced to slash rates.

But the point to ask yourself is whether that is a good bet? I contend that with everyone leaning so heavily one way, the surprise will not be how much money they make, but instead if things don’t play out exactly as ominously as forecasted, how quickly the trade goes sour.

There is little room for error. Or put it another way, the global economy better collapse as quickly as these bears believe as even a lengthening of the process will make their trade unprofitable.

And in case you are bullish the long end of the curve and believe a slow-to-cut Fed is your best friend, don’t forget what Tariff Man has done to inflation. Next year should see a rise of 50 basis points across the board to core inflation. Sure commodities are falling hard, but that helps more with China’s inflation situation than with America’s.

The bond market is indeed pricing in rate cuts by the end of the year. The big question is how much of that is hedging of fears about the potential for a slowing global economy and resulting US Dollar outperformance and how much is about the need for an end to quantitative tightening in order to fend off fears about an impending recession?

Johnson said he would prepare for no-deal, go back to Brussels to renegotiate the toxic Irish backstop, and make clear that he’s prepared to leave without a deal if the EU says no. He said he believes the U.K. will leave the EU on Oct. 31 -- the latest deadline -- with or without a deal.

He has long indicated that he’d be willing to pull the U.K. out of the bloc without a deal and has criticized May for surrendering to the EU. That has spooked markets, and the pound has weakened on concerns that a hardliner would pursue a no-deal exit.

Johnson’s other tactic is to get Parliament to rule out the possibility of canceling Brexit --- an option the U.K. legally has. That would make the threat of no-deal more credible, and could concentrate minds in the EU, where some officials continue to hope that the U.K. might change its mind.

The EU has repeatedly said it won’t reopen the divorce deal and won’t change the Irish backstop. It’s the most contentious part of the agreement as it potentially keeps the U.K. bound to the EU rules indefinitely and treats Northern Ireland differently to the rest of the country. Johnson noted that a majority in the Parliament has voted to renegotiate the backstop.

As for a second referendum, Johnson thinks it’s a very bad idea. “Put Brexit to bed, pacify this bawling that’s been going on for so long,” he said.

With all the best will in the world, the Brexit question is still going to be an enormous dispute to settle successfully. The first rule of negotiating is you need to be willing to walk away. That is why the threat of a hard Brexit needs to remain on the table and needs to be credible. The UK needs to do everything possible to plan for a hard Brexit because preparing for the worst and hoping for the best is the only strategy one can follow when faced with tough odds. From that perspective Boris Johnson is the best man for the job.

Again, very grateful thanks for the very interesting and thoughtful comments you post each day. They are helpful to both newer investors and the more experienced who may get locked into their way of thinking. I count myself in that category! One factor that does not get mentioned perhaps as often as it should is the impact of currency movements on investment portfolios. Those of us using pound sterling as our home currency may feel particularly sensitive to this at this time. Those of us that assess gold as a possible investment often check gold in different currencies to determine whether a broad-based uptrend is evolving (eg compare gold in USD, Euro where the pattern looks quite different.) But I suspect fewer investors factor in currency movements when buying stocks in the USA, Europe, India, Japan and China. What are your thoughts on this?  

Thank you for this question which I believe will be of interest to other subscribers. From everything I have witnessed over the years large institutional investors look for three attributes when deciding to invest in markets beyond assets denominated in their domestic currency. These are potential for currency market appreciation, potential for capital market appreciation and yield differentials. I see no reason why investors of all hues shouldn’t follow the same rationale. That is the basis for thinking as a globally oriented investor and why this is a Global Strategy Service.

The root cause of the problem is that too few Tories realise that we are in the midst of the political equivalent of a bank run: the depositors are queuing to take their money out, and the whole system is about to implode. The choice is either urgent, decisive and painful action, or a Canadian-style collapse for the Tories when the inevitable general election comes. Every passing day is an embarrassment, further toxifying the Tory brand, and each one of Mrs May’s pronouncements costs the party yet more support that it will struggle ever to recover. The European elections will be a catastrophe.

Tory MPs and the remaining members of the Cabinet need to understand the depth of their predicament, and do anything they can to accelerate Mrs May’s ejection from office. They should snap out of their debilitated stasis, pull out their fountain pens and get writing to Sir Graham. The other Cabinet members must realise just how badly their own reputations are being damaged: they are propping up Mrs May, and they are still far too obsessed with their own leadership prospects to want to rock the boat. Do they really want to lead a rump opposition party, or even lose their own seats, which is where their cowardice and excessive caution could eventually lead?

There may be a chance of a Tory-Brexit Party pact at some point but zero chance that supporters of Mrs May’s deal or her allies will be spared the full force of Nigel Farage’s party. Any Cabinet minister with a sense of self-preservation must therefore follow Mrs Leadsom in repudiating both. It is their only chance.

Theresa May took the job of Prime Minister in large part because no one else wanted it, and everyone knew from the outset it was a poison chalice. She has failed, as expected, to bridge the chasm between the Leave and Remain sides of her party. However, because of the betrayal of the vote for a clean break she is now is facing the clear potential for schism with in the Conservative Party. Under Theresa May’s watch a third force has emerged in UK politics, with far more groundswell appeal than the Liberal Democrats ever had. That is something she deserves all the blame for. The lurch towards the fringes and away from the status quo is now well underway. It has been my opinion for months that both the Conservatives and Labour would be eviscerated at the next election. Now we know what the alternatives look like.  

Overnight swap markets are currently pricing in two RBA cuts by November. Westpac Banking Corp. economist Bill Evans on Tuesday brought forward his forecast for the first reduction in the cash rate to June, with a second to follow in August. Commonwealth Bank of Australia and Royal Bank of Canada expect the same.

JPMorgan Chase & Co. though says two cuts may not be enough. “From where we are today, this is still not sufficient to fully neutralize risks to the RBA staff’s current forecasts, suggesting risks to a sub-1% cash rate,” economist Ben Jarman wrote in a note.

Franklin Templeton’s Canobi expects the RBA to lower borrowing costs three to four times over the next nine to 12 months as tepid inflation weighs. “We never felt that inflation has really had a grip since the RBA started easing in 2016, and it still looks pretty weak,” he said.

Australian mortgages are full recourse and floating rate. The Australian consumer is carrying some of the highest leverage ratios in the world, second only to Canadians in the G7. That’s fine as long as the property market is rising but when it starts to contract pressure starts to build on leverage at even a slight down turn in the ability of consumers to service their debts.

You have probably have had your fill of Brexit but I thought you would find this piece quite insightful in explaining the rise of the Brexit Party. 

The weekend results are going to be far more interesting than we have ever believed an EU election could be.

https://unherd.com/2019/05/how-farage-outflanked-everyone/

Thank you for this article which I agree is a useful primer on the rise of a populist party. The process has been long and drawn out in the UK because people believed that by voting for Brexit, what they were going to receive was change. The failure of incumbents to deliver necessarily requires the rise of a new power which at least promises to deliver.

Nigel Farage’s Brexit Party is poised to dominate the upcoming European elections in the U.K., according to spread betting firm Sporting Index.

The anti-EU party will win 28 seats, the firm said. Prime Minister Theresa May’s Conservatives will win seven, while Labour will take 13 and the Liberal Democrats 12, Sporting Index predicted in an email in London on Tuesday.

Sporting Index has had a consistently strong record in predicting some of the key twists and turns of the Brexit saga. Last month, about two hours before the latest vote on May’s Brexit deal, the spread betting firm forecast she’d lose by 60 votes. She was defeated by 58.

“The Tories look set to face the consequences over their handling of Brexit, with the Brexit Party and Liberal Democrats making significant gains due to their clear stance on one of the most polarizing events in British politics,” Sporting Index’s Phill Fairclough said.

On Tuesday, May offered lawmakers a vote on whether her Brexit deal should be subject to a referendum, in a last-ditch bid to save it. Last time MPs voted on a second referendum, there was just a 12- vote difference, with 280 backing a confirmatory vote on a deal and 292 against it.

There is a large contingent of UK voters who thought they would never be voting in a European election again. Presented with the opportunity to stuff the European parliament with Eurosceptics they are likely to leap at the chance.  The UK isn’t the only country where parties at odds with the European union’s aim of further cohesion are likely to gain ground. France, Italy, Austria, Sweden, Denmark and Spain all have room for electoral upsets. Perhaps the greatest irony is from next week the continent will have a more Eurosceptic voice than Westminster.

Days after his coalition partner roiled markets by threatening to breach European Union fiscal rules, Deputy Prime Minister Luigi Di Maio of the Five Star Movement said Italy’s government wants to rein in the debt load to avoid it spiraling.

“Nobody wants to go over 140%,” Di Maio said during an event in Florence. “Otherwise, the debt-to-GDP level would be out of control.” He added that some investments could be financed by increasing the deficit level provided that it boosts economic output, limiting the debt ratio.

The country’s debt-GDP level was 132.2% at the end of last year.

"I think that 130% is already a lot," European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters in Brussels when asked about Italy’s debt.

Italy has a domestic economy that is struggling and a group of high-profile exporters heavily reliant global growth. Trade war worries are weighing on sentiment particularly as the populist government seeks to modestly breech EU fiscal deficit limits.

This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.

China’s dependence on global trade is far greater than the USA’s and the market has been voting with its feet by both supporting the Dollar, the bond market and the stock market since the trade war began.

The rationale for allocating to emerging markets rests on three pillars: Superior economic growth has resulted in positive market returns historically, low correlation within emerging markets and across asset classes has provided diversification benefits, and relative scarcity of information has created opportunities for active portfolio management. Long-term historical data confirms that emerging markets have provided positive long-term risk-adjusted excess returns and enhanced portfolio diversification. Their diversity has led to high cross-sectional return dispersion, both at the country and at the security level, creating opportunities to add value through active country allocation and stock selection. Omitting this equity segment would have introduced a performance drag on global indexed strategies and reduced the investment opportunity set of active strategies. The opening of the domestic Chinese capital market and its integration into international markets is likely to have a transformative effect on the emerging markets equity segment. MSCI introduced domestic Chinese equities (A shares) into the MSCI Emerging Markets Index in June 2018 at a reduced weight. Chinese equities listed in mainland China and Hong Kong currently represent 30% of the index but could grow to over 40% when A shares are included at full weight. The growing size of China within emerging markets raises the prospect for investors of making dedicated allocations to China. Whether investors make separate China allocations or continue to seek opportunities across global emerging markets, the segment likely will remain an essential element of the global equity universe in the future.

China already dominates the emerging markets sector and its influence is likely to further increases with the increased weighting of A-Shares. At 40% of the Index it will become increasingly difficult to invest in emerging markets without gaining at least some exposure to China. That will be either because of direct participation or because of the reliance of some markets on Chinese demand.

As you say, the US has many alternative sources of cheap goods but there are limited sources of US technology. China also has no alternative buyers of its products. Round One of the international confrontation will be won by the US.

Buyers can always look elsewhere because there is always someone who is willing to provides services at a lower cost or who can manufacture a copycat item which is “good enough” Sellers have to focus on retaining that competitive edge but often have a hard time replacing lost customers, particularly when they are have already maxed out their growth.

Uncertainty over how the dispute would be resolved in the one-month deadline set by Washington will reinvigorate a hunt for haven assets in a world already hampered by slowing growth.

An easy bet will be to short the expected losers: risk-sensitive currencies from Asia to South America, they say. “To be honest, I thought the dollar would be rising at a much faster pace than this -- markets were pricing in a Goldilocks environment and they were clearly wrong,” said Stephen Miller, an adviser at asset manager GSFM and a former head of fixed income at BlackRock Inc.’s Australian business.

“Right now I’d be long U.S. dollar versus EM currencies, the likes of Argentina and Turkey.” There’s a 60% chance that China and U.S. won’t reach a deal in the coming weeks, according to analysts at Australia and New Zealand Banking Group Ltd., after last week’s talks laid bare divisions including the removal of existing tariffs and a breakdown in trust. While both nations plan to continue negotiations, traders are waiting for Beijing’s retaliation measures after Washington slapped more duties.

The Chinese renminbi has long been used as policy tool and tariffs being imposed on a wider range of goods, there is a clear argument for having a weaker currency. The country is obviously going to experience some difficulties from tariffs imposed on exports to one its largest trading partners but the potential for domestic inflation to spike on the back of a weaker currency is likely to limit the scale of devaluation.

In recent years, their challenges have increased. Climate change stretches the dry season, or makes rainfall erratic. Last year some farms went up to 45 days without rain. The farmers watched their maize and bean plants wilt and die. Then they reaped only more debt from their meager coffee harvest.

In normal circumstances when the price of a commodity drops below economic production levels supply dwindles. That eventually contributes to recovery.

Match, which is owned by billionaire Barry Diller’s IAC/InterActiveCorp, runs dozens of dating sites like Tinder, OKCupid, Plenty of Fish and Hinge. But the bulk of the company’s earnings gains were fueled by Tinder, which lured in more than 384,000 new subscribers in the quarter, boosting direct revenue 38 percent from the year earlier period.

The online dating app, where users swipe right to indicate interest in a potential date, now boasts 4.7 million global subscribers. Overall, Match’s average subscribers increased 16 percent with most of the new users flowing in from outside North America.

“The world is changing," said Mandy Ginsberg, chief executive officer of Match. “I’ve been here a long time and 100 percent of the revenue used to be in the U.S. and now the growth and more revenue is outside of the U.S."

With arranged marriages on the decline in India and the stigma towards online dating eroding in Japan, Ginsberg is concentrating on international expansion. There are more than 400 million single people living outside North America and Europe, two-thirds of whom have not yet tried a dating product, according to Match. Ginsberg recently revamped the company’s leadership team in Asia -- appointing general managers in Tokyo, Seoul and Delhi -- to try and grow Match’s footprint across the continent.

Economic growth in India and the subtle shift towards female empowerment represent major growth opportunities for social media and online dating companies. Narendra Modi’s election five years ago as the first low caste Prime Minister represented a signal that social striation enshrined by the caste system and sustained by the system of arranged marriages may be changing. A more open society would represent a significant change for India which has historically been socially conservative.

Most of the downgrades were less severe than in the previous report in February, apart from Germany, where the 2019 prediction was slashed to just 0.5 percent from 1.1 percent. Officials in Brussels warned that downside risks to the region’s outlook remain “prominent.”

The forecasts reflect more pronounced weakness in the region, which has stumbled due to a slowdown in the global economy, unresolved trade disputes and “exceptional weakness” in manufacturing. Meanwhile sentiment has taken a hit from disruptions in the auto industry, social unrest, and uncertainty related to Brexit.

German carmaker BMW said on Tuesday that the economic backdrop is “increasingly challenging” and business conditions are “expected to remain volatile.”

“As initial deadlines for U.S.-China trade negotiations and Brexit have passed without resolution, various uncertainties continue to loom large,” the European Commission said in its quarterly report. “An escalation of trade tensions could prove to be a major shock.”

The Eurozone is heavily dependent on international trade and Germany’s persistent surpluses are very much tied to export growth. Trade wars and the continued transition of the automotive supply chain towards battery powered vehicles represent significant challenges to both economic output and employment.

3M Co. agreed to buy medical-products maker Acelity Inc. for about $4.3 billion, its biggest acquisition ever, as new Chief Executive Officer Mike Roman takes a more aggressive approach to expanding the beleaguered company.

The purchase, from a group of funds advised by Apax Partners, is spurring 3M to scale back share repurchases to conserve cash. 3M will cut buybacks to between $1 billion and $1.5 billion this year from a previous expectation of as much as $4 billion, according to a statement Thursday. The company valued the purchase at $6.7 billion including Acelity’s debt, which was $2.4 billion on Dec. 31.

Buying back shares has been the go-to strategy for many companies over the last decade because the cost of borrowing has been so low which has made debt more appealing that equity. The practice helps to improve earnings per share, helps investors avoid paying taxes on dividends received and increases the value of shares owned by senior executives. The one thing buybacks do not do is help with creating new products.

A link to the full report and a section from it are posted in the Subscriber's Area.

The rise of populism in the world’s major democracies is being seen as a crisis by those most at risk of losing their position. However, it is above all a reflection of the elasticity of democracy, where we have the opportunity to propose solutions to problems of falling living standards. No one is under any illusion this process is easy but it will have long-term benefits for all of society. The fact we can have these kinds of discussions in democracies is a major strength because totalitarian societies have no room for discussion and are therefore more susceptible to collapse.

The Brazilian economy has reached a tipping point ▪ GDP growth has returned ▪ Consumer and industry confidence are high ▪ Inflation and interest rates are at all-decade lows ▪ Country risk is on the decline ▪ Capital markets are active as ever… ▪ …and BOVESPA is at its highest point to date.

But to expand growth and make other advances, the country will need to close gaps with developed and emerging economies: ▪ Productivity has grown very little over the last decade ▪ The demographic and workforce boom is over, meaning that productivity gains will be needed to drive growth ▪ We lack innovation, patents, and a skilled workforce… ▪ … and we have not seen any sign of homegrown tech or innovation giants among our top-performing companies.

A link to the full report is posted in the Subscriber's Area.

Corruption is a scourge Brazil has long had to contend with and it is not about to disappear overnight. In any society, the way the elite retain power is to ensure their supporters are well looked after, often at the expense of everyone else. That generally results in government employees receiving attractive pay packages and secured pensions. That is true in every country but represents a particular challenge when it represents an obstacle to recovery which is why pension reform is so important for the long-term health of the Brazilian economy. 

Time-honored locations – such as Switzerland and the Cayman Islands – continue to attract the world’s wealthy, but no country is experiencing HNWI inflows quite like Australia.

The Land Down Under has a number of attributes that make it an attractive destination for migrating millionaires. The country has a robust economy, and is perceived as being a safe place to raise a family. Even better, Australia has no inheritance tax and a lower cost of health care, which can make it an attractive alternative to the U.S.

In 2018, Australia jumped ahead of both Canada and France to become the seventh largest wealth market in the world.

Greece, which was one of the worst performing wealth markets of the last decade, is finally seeing a modest inflow of millionaires again.

People move for all sorts of reasons but chief among them are to either benefit from the tax and economy of the destination country, to find a better place to rear children and escape an overbearing or overtaxing regime.

Personally, I moved to the USA because of its open welcome for people of all races, the weather, the time zone, the attractive tax structure for businesses as well as my belief that Wall Street is in a secular bull market. I’ve since learned the USA is one of the most attractive tax havens for overseas investors.  

Even with teams working around the clock, it was weeks before Mondelez recovered. Once the lost orders were tallied and the computer equipment was replaced, its financial hit was more than $100 million, according to court documents.

After the ordeal, executives at the company took some solace in knowing that insurance would help cover the costs. Or so they thought.

Mondelez’s insurer, Zurich Insurance, said it would not be sending a reimbursement check. It cited a common, but rarely used, clause in insurance contracts: the “war exclusion,” which protects insurers from being saddled with costs related to damage from war.

Mondelez was deemed collateral damage in a cyberwar.

The 2017 attack was a watershed moment for the insurance industry. Since then, insurers have been applying the war exemption to avoid claims related to digital attacks. In addition to Mondelez, the pharmaceutical giant Merck said insurers had denied claims after the NotPetya attack hit its sales research, sales and manufacturing operations, causing nearly $700 million in damage.

When the United States government assigned responsibility for NotPetya to Russia in 2018, insurers were provided with a justification for refusing to cover the damage. Just as they wouldn’t be liable if a bomb blew up a corporate building during an armed conflict, they claim not to be responsible when a state-backed hack strikes a computer network.

The disputes are playing out in court. In a closely watched legal battle, Mondelez sued Zurich Insurance last year for a breach of contract in an Illinois court, and Merck filed a similar suit in New Jersey in August. Merck sued more than 20 insurers that rejected claims related to the NotPetya attack, including several that cited the war exemption. The two cases could take years to resolve.

The threat from cyber crime is both real and obvious but many investors have been disappointed by the performance of the cybersecurity sector. It makes intuitive sense that with so many hacks, ransomware events and industrial espionage that the sector should be among the best performers internationally.

"The credit data lifted expectations on market liquidity and economic fundamentals," said Wang Jianhui, a Beijing-based analyst with Capital Securities Co. "It provided an excuse for investors who wanted to bottom fish stocks after last week’s correction. But it’s more likely a technical rebound as there hasn’t been any substantial change in fundamentals."

The decline in mainland shares came after some companies issued profit warnings. In Shenzhen, Jiangling Motors Corp. sank by the 10 percent daily limit after it predicted an 84 percent decline in first-quarter net income from a year earlier.

Shandong Chenming Paper Holdings Ltd. slid 8.9 percent after saying its first-quarter profit may plunge 94 percent to 96 percent.

"While the macro numbers suggest a recovering trend, things are still looking weak in the micro segments including corporate profits," said Shen Zhangyang, a Shanghai-based strategist with
Northeast Securities Co.

The catch-22 facing policy makers is if they stimulate too much, they risk a bubble developing but if they don’t do enough, they risk a contraction. That is a clear reflection of the role liquidity has played in the evolution of the bull market over the last decade and how reliant on stimulus it is for continued expansion. They generally err on the side of caution so that is supportive of continued support.

The current account deficit, which last year widened to almost 3 percent of gross domestic product, remains a key vulnerability for the economy. It makes Indonesia reliant on foreign capital to fund its import needs, inflows that can be volatile as investor sentiment swings.

The deficit was one of the main reasons why Indonesia was targeted in an emerging market sell-off last year, triggered by rising U.S. interest rates and a stronger dollar. The rupiah slumped more than 5 percent against the dollar in 2018, dropping to its lowest levels since the Asian financial crisis two decades prior, as investors pulled out of the nation’s stocks and bonds.

The rupiah has bounced back in 2019, helped in part by the central bank’s swift action in raising interest rates by 175 basis points and the U.S. Federal Reserve’s shift away from policy tightening this year. The current account remains a risk though, and the government has imposed a number of measures to curb imports and spur exports to lower the deficit.

Data on Monday showing a second consecutive monthly trade surplus in March suggests the current account deficit probably narrowed in the first quarter. Economists surveyed by Bloomberg had predicted a $177 million trade deficit in the month.

Any politician from a democratic country, with a population of hundreds of millions, the majority of whom are entering the workforce is unlikely to succeed without at least posing as a pro-growth candidate. Both candidates in Indonesia are running on differing platforms aimed at promoting growth. In India, both the BJP and Congress Parties are showing support for small business and credit growth. In Nigeria’s last election last February, more than a few of those who have been holding office for decades lost their seats as the youthful population demand jobs and less graft. Those are all positive stories for the long-term trend of improving standards of governance in emerging markets.

Sustained increase in manufacturing will depend on, among other factors, the continuation of a favourable incentive regime into the next government, the official said. Mails sent to Foxconn and Apple seeking comment remained unanswered.

The company began its India manufacturing journey through another Taiwanese company Wistron, which had started with the iPhone SE from its factory near Bengaluru two years ago and later advanced to iPhone 6S model. Wistron now makes iPhone 7, a sign analysts foresee as a bump-up in local manufacture of multinational technology companies keen on the Indian market. Around 290 million smartphones were assembled in India in 2018 up from 58 million in 2014, according to data from the Indian Cellular and Electronics Association.

"In the short-term, the Differential Duty and the Phased Manufacturing Programme worked as far as import substitution is concerned. Now the challenge is to move from 290 million to 500 million phones and then to one billion by 2025," Pankaj Mohindroo, National president for ICEA, said.

"The National Policy on Electronics, 2019, gives a broad framework, but we will have to put a robust action plan behind it, which will enable exports..."

The ICEA has as its members brands such as Apple, Xiaomi, Vivo, Oppo, and manufacturers such as Flex and Foxconn.

India has the twin advantages of a massive young population and low costs. If we think about how manufacturing generally evolves, it is usually attracted by the presence of a low cost base and regulatory change which incentivises growth. Infrastructure usually comes later but it does need to be built. That is potentially where India is today. It is successfully attracting manufacturers but will need to do what is necessary to ensure they stay.

The wider deficit forecast could revive tensions with the Commission after months of wrestling at the end of 2018 which resulted in a promise from Italy to stick to a deficit of 2.04 percent of GDP. With growth lower than expected, the money to keep the promise isn’t forthcoming. Nor is the government keen on measures that would dampen growth, with Finance Minister Giovanni Triastating recently that restrictive fiscal moves would be “absurd.”

Italy stocks extended losses after the report, with the FTSE Mib index down 0.4 percent at 3.00 p.m. in Milan. The spread between Italian and German 10-year bonds widened by 4 basis points.

"The deficit is the most thorny issue for Italy and could spark tensions with the European Union," said Vincenzo Longo, an analyst of IG Markets in Milan. "We are expecting negative growth in the first part of the year and the numbers the government is going to debate seem too optimistic. The government isn’t likely to push the issue however until after the European vote in May."

The fiscal austerity program the EU is abiding by is designed to harmonise government debt to GDP ratios ahead of introducing pan European institutions like a deposit insurance corporation and a federal transfer mechanism. It offers no leeway for subpar economic growth which is what Italy is dealing with at the moment. That represents a significant challenge for the system because it greatly increases the potential for rebellion.

The polls also suggest a great deal of uncertainty: Not only is the pro-Netanyahu advantage modest, but several small parties on both right and left have seen their vote totals hover around the electoral threshold for entrance into the Knesset. If they fail to clear 3.25 percent (nearly 4 seats), their votes would be discarded, potentially upending the equilibrium between the left- and right-wing blocs.

For Netanyahu, this election presents not only a battle for his political life, but possibly a battle for his personal freedom. The Israeli attorney general has decided to indict Netanyahu in three cases, including one charge of bribery, pending a hearing with the prime minister and his lawyers in July. Bibi’s lawyers face the challenge of undoing what months and years of investigations have presented to the attorney general (a Netanyahu appointee). Barring their unlikely success, Netanyahu will need a coalition willing to keep him in power through one of two unpopular avenues. First, he could maintain the support of such a coalition while on trial for serious crimes (he would only have to resign by law if convicted). Or, better yet for Netanyahu, he could form a coalition willing to pass legislation granting the prime minister immunity from prosecution. With all these uncertain factors at play, it is possible that we see another round of elections before too long—maybe even within the year.

36% of the global population is voting this year with Israel and Turkey the most recent examples. And neither is going particularly smoothly. The underlying forces that are fomenting political populism are evident in most countries because the status quo has failed to deliver on rising standards of living, resulting in a much tighter focus on corruption and inequality. In a democracy like Israel, low turnout has exit polls showing either a dead heat of a win for the opposition which risks installing a left-wing government. Meanwhile in Turkey, Erdogan is intent on redoing the mayoral election in Istanbul because he did not like the first result which is a clear threat to the country’s democratic basis.

One in five of the world’s consumers will live in Africa by the end of the next decade, and more and more of these people will fall under the category of affluent or middle-class. Growing discretionary incomes will lead to higher demand for high-quality, niche, and foreign-produced goods. Urbanization, such as in Nigeria where eight cities already host populations over 1 million people, promises to increase competition for formal retail centers and the development of efficient production and distribution chains. Rebounding oil prices in Algeria, Angola, Nigeria, and Egypt may contribute to an increased market share for luxury goods. Though, ultra-high net worth individuals(whose net assets exceed $30 million) reside throughout the continent—in South Africa, Egypt, Nigeria, Kenya, Tanzania, Ethiopia, and Morocco. Growth in GDP per capita will lead to greater purchasing power among these classes of the population, and luxury goods retailers should look to the continent for entry points.

Fast moving consumer goods companies need to be where the people are. The countries with the most favourable demographics in the world today are all either in Africa or Asia with India, Indonesia, Nigeria and Ethiopia notable for their high populations. The global birth rate has already peaked which means companies have at best the next thirty years to capitalise on the demographic dividend before the global population starts to contract.

“We’re going to implement structural reforms that will make our economy stronger against such attacks with great speed following the election,” Erdogan said.

The question is if investors will stick around long enough to see if he delivers this time. With Turkey succumbing to its first recession in a decade and unemployment at the highest in nine years, Erdogan will have an uphill battle ahead. It will be far harder to make headway on such key challenges as overhauling the labor market now than during a period when economic growth of 5 percent or more was the norm for Turkey, according to Naz Masraff, director for Europe at Eurasia Group.

Elections Loom
“It’s almost the least likely period to do structural reforms after the elections,” Masraff said. “If Turkey hasn’t managed to do them when growth was higher and the country was doing economically better back in 2011, 2012, it’s really difficult to do it in a downturn.”

Turkey has a great deal of US Dollar denominated debt and with the Lira under pressure that is only going to be a progressively more burdensome obstacle to recovery. While extraordinary measures are underway to support the currency ahead of this weekend’s municipal elections, the broader question is what measures are going to be put in place to repair the economic fabric after the election.

For all its enduring hype — physical versus digital, offline versus on — the old war is over. In fact, it’s always been a lie. Choice, not location, is commerce’s greatest opportunity and its most-looming threat.

In defense of retail’s “apocalypse,” brick-and-mortar losses are mounting; the four-year bankruptcy count now sits at 57 once-landmark chains. Manufacturing market share and in-store sales for consumer packaged goodsare flat or declining. Born-online “microbrands” have devoured the lion’s share of growth. And ecommerce’s gains continue to trounce retail as a whole.

Here’s the uncomfortable twist: brick-and-mortar still dominates online sales by over $20 trillion. And the gap will widen. After a quarter century, ecommerce’s spread is slowing, 80% of 2018’s gains belonged to Amazon, and (in the U.S.) the top five online retailers own 64.7% of sales:

I found this report to be very interesting because it comes from a company whose business model is to supply small and start up sellers with an ecommerce platform and provides a partial counterweight to Amazon’s more than 50% share of the online retail market in the USA.

Chinese investments have become increasingly contentious in the EU. Diplomats in Brussels and influential western European capitals have long worried the 16+1 grouping of China and central and eastern European states, including 11 EU members, is a Trojan horse to divide the bloc. Beijing has denied this suggestion.  EU member states such as Germany and France have pushed for tougher screening criteria for Chinese investments. They want the bloc to develop a more unified strategy amid rising tensions over the security implications of using Chinese technology from companies such as Huawei, the telecoms group. Other countries including Greece and Portugal, where Chinese groups have invested billions of euros since the financial crisis, have adopted a more lenient approach.

I can’t help but think of the adage “a drowning man will clutch at a straw”. Italy’s populist administration has need of both funds for investing in public works and also a desire to snub the federalist ambitions of Northern European creditors. Meanwhile, China has a clear ambition to draw European countries within its sphere of influence in an effort to cement export markets and to weaken the chances of a concerted effort to blunt its expansionism.

A link to the full report and a section from it are posted in the Subscriber's Area. 

In some instances, the sharing economy appeared to inflame the very problems it purported to solve. The supposed activation of underutilized resources actually led to more, if slightly different, patterns of resource consumption. A number of studies have shown that the ease and subsidized low cost of Uber and Lyft rides are increasing traffic in cities and apparently pulls passengers away from an actual form of sharing: public transportation. Students at UCLA are reportedly taking roughly 11,000 rides each week that never even leave campus. In putting more cars on the road, ride-hail companies have encouraged would-be drivers to consume more by buying cars with subprime loans or renting directly from the platforms themselves.

Alongside making it easy to rent out spare rooms, vacation rental platforms encouraged speculative real estate investment. Whole homes and apartment buildings are taken off the rental market to act as hotels, further squeezing housing markets in already unaffordable cities.

Early sharing champions were ultimately correct about technology enabling a shift away from an ownership society, but what came next wasn’t sharing. The rise of streaming services, subscription systems, and short-term rentals eclipsed the promise of nonmonetary resource sharing. The power and control wasn’t decentralized; it was even more concentrated in the hands of large and valuable platforms.

Why go through the trouble of swapping your own DVDs for a copy of Friends With Benefits, after all, when you can stream it through Amazon Prime Video for $2.99? The idea of paying for temporary access to albums rather than outright owning them may have been galling at first, but we’re increasingly comfortable with renting all our music, along with our software, and our books. Downloading and sharing the materials that live on these streamed resources is impossible, illegal, or both.

The evolution of the subscription business model has helped to streamline balance sheets and has essentially turned the lumpy cashflows of technology companies into the equivalent of consumer staples. That is one of the primary reasons they have continued to be able to command such high valuations.

Another vulnerability for Jokowi is the nation’s economic performance during his first term. Indonesia’s exceptional track record of sound macroeconomic policies since the transition in 1998 has been maintained. However, as The Jakarta Post noted in a 2016 article, he has been unable to lift the growth rate from the lackluster pace under his predecessors. His promised surge in infrastructure investment has not materialized, the state enterprise sector is largely unreformed, and a host of environmental challenges are not being addressed adequately.

The possibility that disenchanted voters will abstain from the election and that enthusiasm among potential voters backing Subianto will produce a surge of votes in his favor has led independent observers (including one of us—Alexander) to conclude that electoral support for both candidates is actually in a statistical dead heat.

The one point of consensus among most analysts is that neither of these two candidates is a committed democrat, implying that Indonesia is likely to continue drifting away from democratic rule in the near term.

A Jokowi-led government will clearly be more aligned with American values than a Subianto-led government because it will be more respectful of human rights and the rule of law. By contrast, a Subianto-led government might be more favored by the Trump administration due to its tough-guy, authoritarian approach to domestic governance and its hardline foreign policies.

The best outcome for long-term U.S.-Indonesia relations would arguably be a landslide victory for Jokowi that makes it easier for him to fix some of the weaknesses of Indonesia’s democratic political system, especially the role of the parliament. His policy leverage during a second five-year term may be enhanced significantly. According to a January 23 piece in Republika, Jokowi’s party, the Indonesian Democratic Party Struggle (PDIP), and its coalition allies are expected to control approximately 56 percent of seats in the new parliament that will also be elected on April 17.

A third of the world population is voting this year and with populist rhetoric already on par with what was witnessed in the 1930s there is ample scope for continued populist uprising. After all, we are now talking about a global phenomenon whereas the pre-War era was really just Europe.

Short Positions
Investors in the futures market are becoming more pessimistic, with non-commercial short-rand contracts outweighing longs, CFTC data show. That’s a turnaround from February, when traders were net long-rand for a brief period.

Selling Out
Foreign investors are getting out of South African bonds and stocks. Non-residents have been net sellers of government bonds at an average rate of 115 million rand ($8 million) a day over the past month -- not a huge number, but a turnaround from mid-February, when inflows averaged 434 million rand a day. And offshore investors have been net sellers of South African equities for the past 14 days, the longest streak since October 2017.

What I find particularly interesting about this article is it provides a very good example of a reporter providing details of what people have already done with their money.

Reserve Bank Governor Philip Lowe noted the withdrawal of foreign buyers in a speech Wednesday as he sought to explain the drivers of Australia’s property slump. The central bank is closely watching the decline, especially as it’s starting to impact household spending and slow the economy.

“Another demand-side factor that has influenced prices is the rise and then decline in demand by non-residents,” said Lowe. “The timing of these shifts in foreign demand has broadly coincided with –- and reinforced –- the shifts in domestic demand.”

While Chinese buyers helped inflate the property bubble, they’re unlikely to return in sufficient numbers to stabilize the market. For one thing, shifting money abroad from China is tougher these days as authorities there are strictly enforcing rules aimed at curbing capital outflows.

There are other domestic factors suggesting prices could keep declining too. Australian banks have turned gun-shy on lending following an inquiry that exposed widespread misconduct in the industry and more homes are coming to the market.

While in Melbourne last April, all anyone wanted to talk about was the impact of the Royal Commission’s inquiry and the price of property. Prices are high relative to incomes and Australia’s private sector debt to GDP is among the highest in the world. With short fixes on mortgage rates and floating rates dominating, the Australian consumer is very interest rate sensitive and has a lot of net worth locked up in property.

If the European Commission’s preference for a Eurozone suitor for Deutsche Bank rather than a domestic merger candidate is any guide, we can conclude that the Eurozone bureaucracy continues to favour a continued drive towards cohesion and banking union. In fact, if we simply look at the measures which have been taken rather than the bluster of the media, nothing has happened to change the direction of policy in the EU towards further cohesion.

The average prices of avocados, butter, olive oil and salmon have climbed as much as 60% since 2013, after stripping out seasonal price patterns and the effects of unusual weather events, according to various sources. Over the same period, prices of corn, soybeans, sugar and wheat either fell or didn’t change significantly.

These changes in fortune reflect the broad dietary shifts of recent years. Many people have switched to eating more foods that are high in natural fats from high-carbohydrate, low-fat diets. And government agencies and nutritionists are recommending that people avoid consuming industrial-made fats and margarines and instead eat more fish, nuts and healthier oils.

Stephan Hubertus Gay, a senior agricultural policy analyst at the Organization for Economic Cooperation and Development, said consumers are eating products that contain fat again. But he said “we were a bit surprised that it came so fast,” referring to the sharp increase in demand.

The write down of goodwill in Kraft Heinz is a clear signal sugar is out of fashion and the foundation of many snack food brands is based on the addictive qualities of the sweetener.

Kraft Heinz remains weak and a clear upward dynamic will be required to check momentum beyond a pause.

After days of buildup, Trump kicked off the week by delaying a threatened increase in U.S. tariffs on Chinese imports and dangling a summit with President Xi Jinping at Mar-a-Lago, his Florida retreat, if “both sides make additional progress.” Along the way, he slapped down Lighthizer on a semantic point. Earlier, the two sides were haggling over how to ensure Beijing lives up to its promise to not weaken the yuan. Trump then reported substantial progress, including on currency.

And

Look for Powell to offer signals on what’s next for the Fed during two days of congressional testimony. When they last met, policy makers broadly backed ending the runoff of the central bank’s balance sheet. Lighthizer, who testifies Wednesday, may give a sense of how likely the U.S. is to impose tariffs on auto imports. The European Union is threatening to hit back. U.S. fourth-quarter gross domestic product, due Thursday, is expected to show 2.5 percent expansion last year, short of the Trump administration’s ambitious goal.

The Shanghai A-Share Index rose 5.95% as investors raced to price in the conclusion the trade war is over. The Index has been trending downwards for more than a year but broke its sequence of lower rally highs two weeks ago and extended that advance today.

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

How likely is it that the USA and China will reach a trade agreement? I think it comes down to two factors. What is it that the USA wants from a deal and what is China willing to give up?

Walmart has also made shipping to your home more affordable. In 2017, Walmart introduced an alternative to Amazon’s pricier Prime membership with free, two-day shipping on orders of $35 or more. This past year, it expanded free, two-day shipping to its marketplace items by working with hundreds of its top sellers and third-party fulfillment providers, like Deliverr.

The company last year also launched a new, more personalized website, which included a revamped Home section, as well as a cleaner, more modern design and sections that showcased items trending in the shoppers’ local area. The redesigned website made it easier to order groceries and reorder favorites, too.

In November, eMarketer noted Walmart had overtaken Apple to become the No. 3 online retailer in the U.S., with Walmart (including its Jet and Sam’s Club brands) poised to capture 4 percent of all online retail by year-end. Amazon, of course, remained No. 1, followed by eBay.

Walmart is making a big push into free 2-day shipping which is effectively the gold standard of online service provision. I sat in on a conference call last week with the company and the CEO of Deliverr, which is offering third party sellers the opportunity to circumvent Walmart’s own criteria for two-day shipping by sending inventory directly to Deliverr’s warehouses. That is an analogue for the Fulfilled by Amazon program which is the foundation of Prime delivery.