Overseas Headlines – March 12, 2018

March 12, 2018

United States:

Ex-Commerce Chief Says Trump Tariffs Could Damage U.S. Economy

The tariffs on steel and aluminium levied by President Donald Trump could damage the U.S. economy and set off trade wars with American allies, according to former commerce secretary Penny Pritzker. “The European Union has come out and said they’re going to go after our bourbon, Levi’s and Harley-Davidson because they all feel very targeted,” Pritzker said in an interview following a speech at the University of Michigan. “What happens to a relationship when you poke somebody in the eye? Will we get past it? Will there be lasting memories? We’re going to have to see.” Pritzker, who led the Commerce Department during President Barack Obama’s second term, said tariffs of 25 percent on steel and 10 percent on aluminium could drive up prices and displace thousands of workers, echoing arguments made by business leaders as well as members of the president’s own party. Pritzker, a billionaire businesswoman who founded PSP Capital Partners, in a column on CNBC urged Trump to work with U.S. allies in the European Union, North America and Asia to pressure China to stop its over-production of steel, aluminium and semiconductors. Pritzker said Friday she found the president’s policy “hard to understand” because it could have such profound unintended consequences. “It doesn’t feel like we’re addressing the problem, which is China,” she said. “And American businesses, soybeans and others, will pay the price. We have 140,000 steel workers and 6.5 million people who work in industries that use steel.” The Trump Administration justified the tariffs as necessary for national security, a claim Pritzker said may not stand up to legal scrutiny. “There’s evidence that this may not be a legitimate way to bring tariffs,” she said. “So then we’ve got retaliation without any benefit.”



U.K. Bonds Set for Boost as Borrowing Seen Falling to Decade Low

U.K. government bonds will get a boost with supply set to drop to its lowest in over a decade following this week’s Spring Statement. The Debt Management Office will slash its issuance target for the 2018-2019 fiscal year by 16.9 billion pounds ($23.4 billion) from 115.1 billion pounds in 2017-2018, according to the median forecast of nine primary dealers surveyed by Bloomberg. Even as global yields continue to rise against an improving economic backdrop, the decline in supply means gilts will outperform German and U.S. debt in the short term, according to NatWest Markets. While the Spring Statement is less of an event for markets than it used to be, with the big decisions on U.K. finances now coming in the Autumn budget, the government borrowing plan for the coming fiscal year will be key for investors. “Whichever way you look at the numbers, we end up with what is likely to be the smallest gilt remit in over 10 years,” said Simon Peck, a strategist at NatWest Markets. “I wouldn’t be surprised to see some near-term outperformance in gilts but we would view this as an opportunity to fade as we are expecting the Bank of England to hike in May and signal a bias toward further tightening later this year.” The yield on 10-year gilts has retreated about 20 basis points from a two-year high of 1.69 percent reached in mid-February. It rose three basis points on Friday.



China Banking Crisis Warning Signal Still Flashing, BIS Says

China, Canada and Hong Kong are among the economies most at risk of a banking crisis, according to early-warning indicators compiled by the Bank for International Settlements. Canada — whose economy grew last year at the fastest pace since 2011 — was flagged thanks to its households’ maxed-out credit cards and high debt levels in the wider economy. Household borrowing is also seen as a risk factor for China and Hong Kong, according to the study. “The indicators currently point to the build-up of risks in several economies,” analysts Inaki Aldasoro, Claudio Borio and Mathias Drehmann wrote in the BIS’s latest Quarterly Review published on Sunday. The study offered some surprising results: for example, Italy wasn’t shown as being at risk, despite its struggles with a slow-growing economy and banks that are mired in bad debts. While China was flagged, a key warning indicator known as the credit-to-gross domestic product “gap” showed an improvement, said the BIS, known as the central bank for central banks. This may suggest the government is making progress in its push to reduce financial-sector risk.