SAO PAULO | By Marcus Nunes via Historinhas | Tim Worstall comes out and calls a “spade a spade” in “Europe Doesn’t Have A Debt Crisis, Europe Has A Monetary Crisis”: The stock markets plunge over concerns about the eurozone; there’s a flight from lower quality sovereign bonds; Greek, Spanish and other periphery bond yields spike. It looks like the eurozone debt crisis is back. But this time around we really should get to grips with the fact that what we’ve got here is really not a debt crisis.
BEIJING | By James A. Dorn via Caixin | In his new book Markets over Mao: The Rise of Private Business in China, Nicholas R. Lardy, one of the world’s leading China experts and a senior fellow at the Peterson Institute for International Economics, makes a strong case that the market, not the state, has been the key factor in the country’s remarkable rise. In 1978, Beijing began to loosen its grip on economic life and paramount leader Deng Xiaoping recognized the failure of central planning as a development model. Today China is the world’s second-largest economy, and the range of choices open to consumers has greatly expanded under economic liberalization and trade.
ZURICH | By UBS analysts | Global investors have been big sellers of Europe ex-UK equities in September and also the last 12 weeks (Figure 1). And this doesn’t include the heavy sell-off in the last week. US Treasury data shows that US-based investors were net sellers of $14.3bn in June–the biggest month of selling since the collapse of Lehman’s in 2008. How far through the current correction are we? So far the European market is down 8% from its September peak–in-line with the average of 9.5% in Bull market corrections since 1975.
LONDON | The Corner | According to experts at Barclays, the significant depreciation of EUR/USD (Fig 1) has been a key data event in the past few months. However, the sharp fall in oil prices has partially offset this positive effect on inflation, which has remained at 0.4% y/y in August. The inflation data remain crucial for the ECB, which has repeatedly emphasised that there is unanimous commitment to use all available tools to prevent a period of prolonged low inflation. We now expect QE on sovereign bonds, most likely by Q1 15.
MADRID | By Julia Pastor | It is likely that the Spanish government will revise its growth forecasts upwards for the country in 2014, but only by one tenth of a percentage point-to 1.3%. This is likely to be the submission that the Ministry of Economy together with the Ministry of Finance will give to the next Council of Ministers.
The British government has failed to condemn China for breaking its promise of greater democracy in Hong Kong. If you were told the Chinese government — an unelected, one-party state — will decide who you can vote for, what would your response be? Not only would you likely object, you would expect others, especially democracies, to loudly condemn the idea. But Britain has done just the opposite to the people of Hong Kong, when it failed to call China out for breaking its promise of greater democracy for the island territory.
ATHENS | Via Macropolis | In a much-anticipated speech, SYRIZA leader Alexis Tsipras unveiled the main pillars of his party’s economic policy platform on Saturday, focusing on debt relief from the eurozone, the use of European Union funds to boost employment, a reduction in taxes and an increase of wages and pensions.
MADRID | The Corner | Although it is not part of ECB’s mandate, last Friday in Jackson Hole, President Mario Draghi spoke about what needs to be done in the euro area to address the problem of high unemployment and weak economic growth. As Barclays analysts believe, the speech “represented a significant breakthrough in the ECB rhetoric and will probably have significant implications regarding the debate just about to start between European government on policies that need to be deployed to avoid a ‘triple-dip recession’ and a fall in outright deflation.”
Via Caixin | By Miriam L. Campanella | Media outlets have published news that based on a World Bank report China’s economy will be the world’s largest in terms of purchasing parity power (PPP) by the end of 2014. Yet, China itself did not welcome the news. The World Bank included a note in its report that the country’s National Bureau of Statistics contested the methodology and rebuffed the report. The Financial Times even reported how China tried to convince World Bank analysts not to use the data. “China wanted to throw this out,” one source said.