By Volker Stanzel via Caixin | The world debate may be preoccupied with crises in the Middle East and in eastern Ukraine and with ISIS and fighting Ebola. Yet, tensions in East Asia have not subsided. Even though the region has seen quite a remarkable level of peace since China’s war against Vietnam in 1978-79, there is a new uncertainty.
ZURICH | By UBS analysts | Will a strong dollar much weaken overall U.S. growth and inflation? The answer importantly depends on how much export and import prices respond to changes in the dollar’s foreign exchange value. Exporters may cut dollar prices and profit margins in order to blunt a stronger dollar’s impact on their market shares and volumes. In fact, over the three months through October, dollar prices of nonagricultural exports fell steadily (by a cumulative 1.3%).
MADRID | The Corner | The Japanese economy unexpectedly entered recession in the third quarter, just after the GDP decreased by an annualised pace of 1.6 per cent, versus forecasts that it would rebound by 2.2 per cent. Japan contracted by 0.4% in the 3Q14, leaving the country in a technical recession, which drove the Nikkei to near 3% losses and raised serious questions about the planned sales tax hike next year.
SAO PAULO | By Benjamin Cole via Marcus Nunes‘ Historinhas | As I predicted, the right-wing has gone past its fixation on absolutely dead prices as an economic cure-all and moral imperative, to the even-better nirvana of…deflation. I wish I was making this up. But comes now University of Chicago scholar John Cochrane, path-breaking with stalwart allies such a FOMC member Charles Plosser, that deflation is an economic elixir, not a sign of stagnation. Cochrane authored a recent The Wall Street Journal op-ed genuflecting to southerly price drifts. I just don’t get it.
By UBS analysts | As the US economic recovery completes its fifth year, direct policy stimulus is no longer being applied, but the economy is poised to move ahead on its own self-generating momentum. Real GDP growth is expected at 2.9% in 2015 and 2.8% in 2016. Less slack in the labor market along with accelerating labor demand should soon be accompanied by somewhat faster wage gains to boost household incomes, confidence and spending. A rising industrial capacity utilization rate should help trigger more sustained gains in capex. And a falling residential rental vacancy rate should further stimulate rents and residential construction.
BEIJING | By Michael Gavin (Barclays) | There are many reasons to be interested in the slowdown of the Chinese economy. Here, we focus on the potential implications for advanced manufacturing economies. They are not the ones with the most to lose in a slowdown; that distinction very likely belongs to commodity exporters. But China’s systemic significance is such that no economy is likely to remain utterly unscathed by a cyclical event there. The question is how scathed major economies will be, and the answer is of some considerable interest for investors, if only because they comprise such a large share of the world’s financial assets.
By Barry Eichengreen via Caixin | A view that Chinese growth must slow because of experiences elsewhere may be ignoring the country’s uniqueness and technological advances.
MADRID | By Sean Duffy | This weekend´s G20 summit in Brisbane takes place against the backdrop of growing economic uncertainty. With the Eurozone on the verge of deflation, leaders are likely to focus on the ECB´s next move, as the world –and financials– await some tangible prospect of growth outlook. Corporate taxation –brought on the table again after the Luxleaks scandal– and climate change also likely to feature, despite the claims of host Australia.
ZURICH | UBS analysts | The US continues to come top of the class in economic terms which, combined with the effect of central bank policy divergence, is clearly driving global flows. Country- specific equity ETF flows in October show that the US saw by far the largest inflows last month followed by the UK, Korea and Australia. Europe was once again a laggard in both economic terms and in flows: Germany, Spain, Italy, and Sweden, saw net outflows in October due to these growth concerns. Within BRIC, China saw the largest outflow since April last year as growth concerns continue to persist but Brazil, India and Mexico saw inflows.
WASHINGTON | By Pablo Pardo | Since the inception of constitutions in modern nation-states, none have undergone such turbulence as those drawn up in Europe. The raison d’être of the European Union is to avoid further turbulence in the future. It is no coincidence that the violent conflicts that have broken out in Europe since World War Two have been outside the EU, in former Yugoslavia, Ukraine, Russia, and Georgia.