FT/Sam Fleming and Shawn Donnan/01-17-17
Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies.
On Monday the president-elect appeared to break from the longstanding “strong dollar” policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. “It’s killing us,” he said in an interview with the Wall Street Journal.
PG View: Let’s be honest, our so-called “strong dollar” policy has been a farce. The greenback is in long-term secular decline, like pretty much every other fiat currency. Only within the last several years has the dollar really appreciated; largely as a result of divergent monetary policy. Those gains are eroding the competitiveness of U.S. corporations, which will likely put trade policy high on the Trump administration’s agenda. Speaking in Davos, an advisor to the President-elect, suggest Mr. Trump is likely to tear-up the rulebook on trade.
Financier Anthony Scaramucci, an adviser to Donald Trump, has been speaking at the World Economic Forum in Davos, Switzerland.
He said President-elect Trump is likely to tear up the old rulebook of how trade deals are done and although he wants a strong relationship with countries like China, is seeking changes to what he called “asymmetrical deals” that have been struck in recent decades.
PG View: That ought to shake things up globally . . .
Theresa May has said the UK “cannot possibly” remain within the European single market, as staying in it would mean “not leaving the EU at all”.
But the prime minister promised to push for the “greatest possible” access to the single market following Brexit.
…And Mrs May promised an end to the UK’s “vast contributions” to the EU.
But Labour said there were “enormous dangers” in the prime minister’s plans.
PG View: Sterling rebounded, encouraged by Ms. May’s assurances that Britain was not turning inward and that Parliament would get to vote on any deal stuck with the EU.
Financial Times/Gillian Tett/12-30-16
“Most notably, 2016 was the year when western markets were rocked by political shocks almost as startling as anything seen recently from the emerging markets world. In 2017 investors will probably confront even more political risk in the “developed” world that will make asset values look more volatile.
…The coming year could be equally unpredictable. France, Germany and the Netherlands will hold elections, just as support for populist candidates is swelling. Theresa May, UK prime minister, is embarking on Brexit negotiations, creating more uncertainty; and markets are waiting nervously to see what Mr Trump does (or does not) do in office, amid a host of conflicting signals.”
PG View: It would seem that the heightened political risks — and myriad attendant risks that come along with such a condition — would significantly enhance the appeal of a safe-haven, hard asset such as gold.
17-Nov (WSJ) — New House Speaker Paul Ryan struck a confrontational stance with the Obama administration Tuesday, setting the stage for showdowns over domestic spending and national security matters as Congress works to wrap up business for the year.
Mr. Ryan, speaking at The Wall Street Journal CEO Council annual meeting, said a spending bill needed to avoid a government shutdown in December must include Republican policy measures, injecting fresh drama into the year’s final budget fight.
He also forcefully warned President Barack Obama against using executive action to close the detention center at Guantanamo Bay, Cuba, and transfer its detainees to the U.S.
The Wisconsin Republican didn’t explicitly suggest government operations could lapse when funding expires on Dec. 11, but he didn’t rule out such a possibility. He said Republicans will force Mr. Obama to accept some conservative provisions, known as “riders,” in the sweeping spending bill.
PG View: In the wake of the latest suspension of the debt ceiling, somebody needs to address spending and the mounting government debt. The omnibus spending bill will have to be passed by December 11 to avoid a government shutdown and it looks like t’s shaping up to be contentions. That deadline is less than a week before the next FOMC meeting.
02-Feb (Financial Times) — Greece’s radical new government unveiled proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders.
Yanis Varoufakis, the new finance minister, outlined the plan in the wake of a dramatic week in which the government’s first moves rattled its eurozone partners and rekindled fears about the country’s chances of staying in the currency union.
…But there is still deep scepticism in many European capitals, in particular Berlin, about the new government’s brinkmanship and its calls for an end to austerity policies.
02-Feb (AP, via Miami Herold) — President Barack Obama sent Congress a record $4 trillion budget Monday that would boost taxes on higher-income Americans and corporations and eliminate tight federal spending caps to shower more money on both domestic and military programs. It would provide middle-class tax relief and fund an ambitious public works effort to rebuild aging roads and bridges.
Obama’s budget, which will set off months of wrangling in Congress, proposes spending $4 trillion — $3.999 trillion before rounding — in the 2016 budget year that begins Oct. 1. That’s a 6.4 percent increase over estimated spending this year, projecting that the deficit will decline to $474 billion.
30-Jan (Reuters, via BusinessInsider) – Greece’s government will not cooperate with the EU and IMF mission bankrolling the country and will not seek an extension to the bailout program, its finance minister said on Friday.
Jeroen Dijsselbloem, head of the euro zone finance ministers’ group who is in Athens for talks with the new government, said the two sides would decide what would happen next before the program ends on Feb. 28.
“This platform enabled us to win the confidence of the Greek people,” Finance Minister Yanis Varoufakis told reporters after their meeting. “Our first action as a government will not be to reject the rationale of questioning this program through a request to extend it.”
30-Jan (WashingtonPost) — The world’s worst portmanteau is back: Grexit.
That’s short for “Greek exit,” as in Greece leaving the euro. And it’s once again a possibility now that the left-wing, anti-austerity party Syriza has won power in the latest elections. The risk, as I’ve said before, is that the rest of Europe is in good enough shape that Germany finally thinks it can let Greece leave, and Greece’s budget is in good enough shape that it finally thinks it can leave too. Neither of them wants that, but neither of them doesn’t want it so much that they’d do anything to avoid it—so both might call each other’s, as it turns out, non-bluffs if Syriza tries to force Germany to renegotiate Greece’s gargantuan debt.
Cue the market freakout in three, two, oh, it’s already here? Why yes, yes it is. Greek stocks fell 11 percent on Tuesday, another 9.2 percent on Wednesday, before stabilizing up 3.2 percent on Thursday. Three-year borrowing costs shot up to 16.9 percent. And worst of all, Greek banks collapsed between 30 and 45 percent in just the last week. That’s enough, as we’ll see in a minute, to make it much more likely that Greece leaves the euro.
PG View: Even after Greece’s talks today with the EU, bond yields continue to march higher, exceeding 19%.
28-Jan (Financial Times) — Greece’s new radical leftwing-dominated government signalled on Tuesday that friction with its European partners might extend from economic to foreign policy when it distanced itself from an EU call to consider broader sanctions against Russia.
A spokesman for the ruling coalition of Alexis Tsipras, prime minister, said Greece had not approved a statement from EU heads of government that asked their foreign ministers to review further sanctions in response to the latest flare-up of violence in eastern Ukraine, blamed by the US and most European nations on Russian-backed separatists.
28-Jan (Financial Times) — Greece’s new prime minister, Alexis Tsipras, said his government would refuse to give in to international pressure over its €240bn bailout but sought to reassure markets by telling his first cabinet meeting that the country would not seek a “mutually destructive clash” with creditors.
In a message to supporters who backed his Syriza party’s anti-austerity platform, Mr Tsipras told ministers that they “must not disappoint the voters who gave us a mandate”.
“We are coming in to radically change the way that policies and administration are conducted in this country,” he said.
27-Jan (Reuters) – Greek markets endured a second day of turmoil on Tuesday, after weekend elections resulted in an anti-bailout government that looks set on a collision course with the country’s creditors.
Three-year borrowing costs spiked above 14 percent, giving up over 4 percentage points since Sunday’s vote, while a collapse in bank stocks hauled down Athens’ main bourse. .ATG
Greece’s malaise also weighed on other low-rated bonds, although the blow was cushioned by the prospect of the European Central Bank’s new bond-buying scheme due to begin in March.
“There is a general anxiety about the situation in Greece and how it is all going to play out,” said Jakob Christensen, senior economist at distressed debt brokerage Exotix.
26-Jan (BBC) — The far-left Syriza party, the winner of Greece’s election, has formed an anti-austerity coalition with a right-wing party, the Greek Independents.
The coalition will have a comfortable majority in the new parliament.
Syriza leader Alexis Tsipras has vowed to renegotiate Greece’s bailouts, worth €240bn (£179bn; $268bn).
European Commission head Jean-Claude Juncker congratulated Mr Tsipras while reminding him of the challenge of “ensuring fiscal responsibility”.
“The European Commission stands ready to continue assisting Greece in achieving these goals,” Mr Juncker said in a tweet which also referred to “promoting sustainable jobs and growth”.
26-Jan (USAToday) — Fresh concerns about the future of the eurozone resurfaced to unsettle markets Monday after Greece’s far-left Syriza party swept to power supported by voters opposed to the terms of the nation’s international bailout.
Syriza party leader Alexis Tsipras agreed to form a coalition government with the Independent Greeks party, a right-wing group that is similarly opposed to the budget cuts and other austerity measures demanded by the European Commission, European Central Bank and International Monetary Fund in return for a massive $270 billion bailout.
That rescue package has allowed Greece to avoid bankruptcy but has come at the cost of severe cuts to spending.
Syriza failed to win in Sunday’s election the requisite 151 out of 300 parliamentary seats that would have allowed it to form a government on its own based on an absolute majority, but the Independent Greeks party’s 13 seats means it can push ahead with its agenda all the same.
19-Jan (Reuters) – Germany’s chancellor made a rare public intervention in the debate about money printing by the European Central Bank on Monday, warning it was no substitute for economic reforms in the euro zone.
Speaking to an audience near Frankfurt that included ECB President Mario Draghi, Merkel said any move by the ECB to buy government bonds with new money should not be used as an excuse to put such reforms on the back burner.
“I have only one plea … and that is aimed at all the representatives of the ECB,” Angela Merkel said at the headquarters of German stock exchange operator Deutsche Boerse.
“It must be avoided that any action taken by the ECB in any respect whatsoever could result in the impression that what needs to be done in the fiscal and competitive spheres could be pushed into the background.”
29-Dec (New York Times) — Governments and investors across Europe braced for renewed economic upheaval on Monday after the Parliament in Greece failed to avert an early general election, reviving the toxic debate over austerity as the way to cure the Continent’s economic woes.
Senior European Union officials immediately urged Greek voters — now headed to the polls on Jan. 25 — to focus on continuing the policies that have enabled the country to ride out its previous monetary crisis and remain part of the eurozone, and that have begun to restore the country’s battered reputation for fiscal management.
But with household incomes down by a third from what they were before the policies were adopted, and unemployment higher than 25 percent, polls have indicated support for Syriza, a leftist party that opposes the deep budget cuts Greece has made in recent years as a condition of financial bailouts.
Syriza has said it wants to renegotiate the two bailouts, worth 240 billion euros, or about $292 billion, obtained from Greek’s so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — since 2010, and get its creditors to write off some of Greece’s crippling debts.
28-Dec (Bloomberg) — Foreign investors have had just about enough of Abenomics.
After pumping record amounts of cash into Japanese shares last year, they’ve hardly added to holdings in 2014. Inflows are down 94 percent this year to 898 billion yen ($7.5 billion), on pace for the smallest annual amount since the 2008 global financial crisis. The month of April 2013 alone registered almost three times as much foreign investment in the stock market as all of 2014.
These figures provide the clearest look at how global investors have become disillusioned with Prime Minister Shinzo Abe after he pushed through a tax increase in April that sent Japan into recession. Fund managers from Sumitomo Mitsui Trust Bank Ltd. to MV Financial say to lure investors back, Abe needs to move beyond short-term stimulus and start enacting the structural changes he laid out in his initial plan, dubbed Abenomics, to end Japan’s two-decade economic malaise.
“We need to see a framework where growth isn’t dependent on monetary easing,” Ayako Sera, a market strategist at Sumitomo Mitsui Trust, which oversees $325 billion in assets. “If not growth, then at least a way to increase productivity. For now there’s nothing like that, so I imagine it’ll be hard for stocks to keep going higher and for foreigners to take an interest in them.”
29-Dec (BBC) — The ruling coalition led by New Democracy is lagging in the polls behind Syriza, an anti-austerity party, whose rise reflects recent polls that show Greeks are frustrated with the EU and even suggest that more Greeks want to return to the drachma than keep the euro. It raises the spectre of Greece’s exit from the single currency – or “Grexit” – once again.
It may be unsurprising, since Greece has only just emerged from six years of recession; when it has been that long, it is really more of a depression. The economy is more than 25% smaller now than in 2008, unemployment is around 25%, and roughly a quarter of households live in poverty.
Some 100,000 businesses have closed, and there are many who wonder what could get the economy going, as borrowing costs (yields on 10 year government bonds) have climbed back to 8%, a level considered to be unaffordable. Greece faced those levels when it first sought a rescue.
So, the austerity measures imposed from the rescue programmes piled on top of economic misery help to explain the volatile political landscape.
If Syriza wins the upcoming election and stands by its pledge to challenge the austerity programme, then it again raises the spectre of euro break-up.
PG View: Greek yields have surged to 12% this morning.
29-Dec (Bloomberg) — Greece faces snap elections next month that risk severing the international lifeline that has supported the country since it sparked Europe’s sovereign debt crisis in 2010.
Prime Minister Antonis Samaras said in a live broadcast in Athens today that he will recommend parliamentary elections are held on Jan. 25, almost 18 months before his coalition’s term was due to end. Samaras spoke after he failed in his third attempt to persuade lawmakers to back his candidate for head of state, forcing the legislature’s dissolution.
“The government did everything possible to get a new president elected and a minority of MPs now drags the country to early elections,” Samaras said on state-run Nerit TV. “I will do all to guarantee that the country stays on the path of reforms.”
17-Dec (Bloomberg) Greek Prime Minister Antonis Samaras’s bid to elect a new head of state faltered in parliament after he failed to gather enough support from lawmakers for his nominee in the first of three attempts.
With voting ongoing in Athens, more than 100 lawmakers in the country’s 300-seat chamber withheld their backing for Samaras’s candidate, Stavros Dimas, ensuring that he falls short of the 200 votes required for his election as president. Samaras has 155 lawmakers in his governing coalition.
Attention now turns to the second vote on Dec. 23, when Samaras again needs a two-thirds majority to win. If he fails in the third attempt, set for Dec. 29, parliament is dissolved and early elections called.
PG View: One step closer to a political crisis in Greece that could reignite concerns over a “Grexit”.
14-Dec (Reuters) – The U.S. Senate on Saturday passed a $1.1 trillion spending bill that lifts the threat of a government shutdown as Congress attempts to wrap up a two-year legislative session marked by bitter partisanship and few major accomplishments.
The Senate’s 56-40 vote sends the measure to President Barack Obama, who is expected to sign it into law before federal spending authority expires at midnight on Wednesday.
Passage of the 1,603-page bill was a long, tough struggle in the Senate and the House of Representatives marked by bitter disputes over changes to banking regulations and Obama’s recent executive order on immigration.
15-Dec (Reuters, via IndiaExpress) — Japanese Prime Minister Shinzo Abe, brushing aside suggestions that a low turnout tarnished his coalition’s election win, vowed on December 15 to stick to his reflationary economic policies, tackle painful structural reforms and pursue his muscular security stance.
But doubts persist as to whether Abe, who now has a shot to become a rare long-lasting leader in Japan, can engineer sustainable growth with his “Abenomics” recipe of hyper-easy monetary policy, government spending and promises of deregulation.
“We heard the voice of the people saying ‘Move forward with Abenomics’,” Abe told a news conference at his ruling Liberal Democratic Party (LDP) headquarters, adorned with giant posters of the premier and his campaign slogan “This is the only path”.
“I want to boldly implement the ‘Three Arrows’,” Abe said, adding he would compile stimulus steps before the year’s end and ask business leaders to boost wages, which have not kept pace with rises in consumer prices.
11-Dec (Reuters) – Congressional Democrats objected on Wednesday to controversial financial and political campaign provisions tucked into a $1.1 trillion U.S. spending bill, keeping the risk of a government shutdown alive.
The complaints from House of Representatives Minority Leader Nancy Pelosi and other top Democrats clouded the chances for passage of the funding bill as a midnight Thursday deadline drew near.
Republicans were preparing a one-or-two day extension to keep federal agencies open past the deadline, but were unwilling to make any concessions on dozens of provisions added to the bill.
PG View: Same old, same old.
01-Dec (AP, via NPR) — Lame-duck lawmakers return to Washington on Monday facing a stacked agenda and not much time to get it all done before the new Congress convenes in January and a Republican takeover is complete.
Their to-do list includes keeping the government running into the new year, renewing expired tax breaks for individuals and businesses and approving a defense policy measure that has passed for more than 50 years in a row. They hope to get it all done in two weeks without stumbling into a government shutdown.
…The No. 1 item is preventing a government closure when a temporary funding measure expires on Dec. 11. The House and Senate Appropriations committees are negotiating a $1 trillion-plus spending bill for the budget year that began Oct. 1 and are promising to have it ready by the week of Dec. 8.
18-Sep (The Wall Street Journal) — Voters in Scotland chose to remain in the U.K. in an Independence referendum on Sept. 18.
Yes: 45% 1,617,989 votes
No: 55% 2,001,926 votes
10-Sep (BusinessInsider) — This paragraph from Credit Suisse should scare those in Scotland who might want independence from Great Britain:
Risk of an economic crisis: In our opinion Scotland would fall into a deep recession. We believe deposit flight is both highly likely and highly problematic (with banks assets of 12x GDP) and should the BoE move to guarantee Scottish deposits, we expect it to extract a high fiscal and regulatory price (probably insisting on a primary budget surplus). The re-domiciling of the financial sector and UK public service jobs, as well as a legal dispute over North Sea oil, would further accelerate any downturn. In our opinion, as North Sea oil production slows, we estimate that the non-oil economy would need a 10% to 20% devaluation to restore competitiveness. This would wages, driven by a steep rise in unemployment.
PG View: Polling on the issue of Scottish independence has moderated somewhat recently, perhaps the Scottish people have gotten wind of this.
03-Sep (Der Spiegel) — The debate over Germany’s insistence on euro-zone austerity has flared anew as an ailing France continues to demand economic stimulus. The European Central Bank may now be siding with Paris, leaving Merkel looking increasingly alone.
The chancellor peered at her impassioned interviewer as if he were some kind of rare insect. An orange microphone in her left hand and eyebrows severely arched, Angela Merkel sank deeply into the armchair on the stage of the Berliner Ensemble theater, as though trying to put the greatest possible distance between herself and the journalist from the political magazine Cicero. Gesticulating wildly, he had just asked for her thoughts on the pain felt in France at being left behind by Germany economically. “Can Germany continue to play such a dominating role?” he demanded.
Her response was evasive. After a pause, she commended France for its military operations in Mali and the Central African Republic. Beyond that, though, not much praise for Paris would be forthcoming that evening on the last Wednesday in August. Merkel’s larger message was the same as it has been for years: France has to solve its structural problems. Only then can it resume its role among Europe’s leaders.
PG View: If the ECB joins France and the rest of the stimulus crowd, Germany is going to have to open the collective purse yet again…
03-Sep (The Wall Street Journal) — Japanese Prime Minister Shinzo Abe overhauled his government Wednesday, rolling out a lineup that signaled his determination to push ahead with changes to boost the economy and raise the country’s military profile.
Mr. Abe’s first cabinet reshuffle since he took power 20 months ago introduced some surprise new faces while retaining ministers in major posts such as finance and foreign affairs.
…”We will continue to put the economy first, aim to snuff out deflation and do whatever we can to implement growth strategies,” Mr. Abe said at a news conference. “It’s the mission of the new Abe cabinet to solidify economic growth and make sure its fruit is felt in every nook and cranny of the land.”
…Robert Feldman, an economist at Morgan Stanley MS +0.61% MUFG in Tokyo, said the new cabinet lineup “suggests extra momentum for third arrow reforms in some key areas,” referring to the structural changes under Mr. Abe’s pro-growth strategy known as Abenomics. The first two arrows are monetary easing and more government stimulus spending.
25-Aug (AP, via US News and World Report) — Ukraine’s president has dissolved parliament and called for early elections in October as his country continues to battle a pro-Russian insurgency in its eastern regions.
President Petro Poroshenko announced in a statement posted on his website Monday that he has dissolved parliament and called for snap elections on October 26.
He said the move was in coherence with the Ukrainian constitution, noting that the ruling coalition collapsed several weeks ago.