Overseas Headlines- April 23, 2019

United States:

Trump’s Top Economist Sees Trade Wars Like Battle Against Scurvy

Donald Trump’s top economist has a new analogy for those bemoaning the impacts of the administration’s trade wars: Just think of the U.S. economy as an 18th century warship battling a scurvy outbreak and Trump’s tariffs and other trade weapons as the bitter lemons needed to cure it. “If you have scurvy and you don’t get vitamin C, then you are going to die,” said Kevin Hassett, chairman of the Council of Economic Advisers. “But vitamin C might not always fix you. Maybe it does. So if I give you vitamin C did I increase uncertainty? You were certain you were going to die before, but now you’re not.” His point is that the president is repairing a sick economy that has been laboring for too long under the weight of disastrous trade deals that disadvantage the U.S. against economic competitors and trading partners such as China and Mexico. But it also gets at a broader question that Trump is facing about one of his economic pillars as he heads into his 2020 re-election campaign. Voters will be wondering if the economic disruption from Trump’s trade policies will be worth it in the end, and looking for proof of their positive impact despite the evidence of mounting costs for the world’s largest economy. Hassett’s riff on scurvy was made last week in an interview with Bloomberg in the hours after the U.S. International Trade Commission released its official, independent assessment of the economic impact of the U.S.-Mexico-Canada Agreement, Trump’s replacement for the quarter-century-old Nafta. The ITC’s headline finding didn’t include the sort of numbers Trump is likely to hail at a rally. The ITC economists estimated that the USMCA would boost gross domestic product by 0.35 percent, or $68.2 billion, and create 176,000 jobs in year six after it took effect. They also had a less rosy view of what it would mean for the U.S. auto market — higher prices, lower sales and fewer vehicle production jobs.



Inflation Slowdown Is Again Stalking Sweden’s Central Bank

Central banks across the world are grappling with the mystery of how to bring back inflation and there are few places where the struggle has been as profound as in Sweden. This week, policy makers in Stockholm are meeting as price growth has slipped far below their estimates and their 2 percent target. Just a few months ago, they raised rates for the first time in seven years, plotting a path out of negative rates this year amid growing confidence they had managed to restore credibility in their inflation regime. But on Thursday they will likely be forced to again lower their rate outlook, potentially pushing back an increase signaled for September and prolonging an era of negative rates. Led by Governor Stefan Ingves, the bank is also expected to extend its bond purchases (by pre-reinvesting bond maturities) beyond June, while keeping the benchmark at minus 0.25 percent. Inflation pressure has “definitely been lower than the Riksbank counted on” said Torbjorn Isaksson, chief analyst at Nordea Bank Abp. “There are fewer and fewer economic arguments for the Riksbank to raise rates.” As global and European growth loses momentum, Sweden’s economy is cooling and unemployment is forecast to rise. A global reassessment of monetary policy, led by the Federal Reserve halting its hiking cycle, is weighing on the Riksbank’s plans to tighten. The European Central Bank is planning more stimulus as it expects its key rate to be unchanged at least through 2019. Nevertheless, policy makers in Sweden have a lot invested in their exit out of so many years of negative rates and they surprised markets in February by sticking to their plans. The krona has tumbled this year, giving the Riksbank more room to raise rates. Some on the board, including Deputy Governors Cecilia Skingsley and Martin Floden, have also flagged that they are willing to live with inflation that holds just below the target, as long as expectations stay anchored around 2 percent.



Asian Trade Is Still Slowing Even With the China-U.S. Truce

Two of the earliest indicators for Asian trade continued pointing down in April, undercutting hopes for a rebound even as the U.S. and China look to be headed toward an settlement of the dispute which has weighed on sentiment. Korean exports dropped 8.7 percent in the first 20 days of April compared to the same period last year. Taiwan’s March export orders declined more than forecast and are expected to continue falling this month, according to a separate release. Global finance chiefs ended talks in Washington this month mixing concern toward the current state of the world economy with confidence that it will soon rebound. The shift away from tighter monetary policy by central banks, recent stimulus in China and easing trade tensions were hailed as reasons to hope the slowdown will prove short-lived. There has also been signs of life in Bloomberg’s global trade check-up, with Hong Kong and Singapore ports figures rebounding in March. However, the continued weakness in Chinese imports is weighing on the regional outlook. While China’s economy was stronger than expected in the first quarter, that’s not translating into increased demand for foreign goods. Chinese imports have fallen in the four months through March. South Korean exports to China dropped 12 percent in the first 20 days of April. Shipments to Hong Kong and the mainland from Taiwan declined almost 14 percent in March from a year earlier. Sinking demand and prices for semiconductors look set to pull South Korea’s exports into the red for a fifth straight month in April, as the nation’s export-dependent economy loses steam. Semiconductor shipments, which account for about a fifth of the nation’s exports, fell 25 percent during the first 20 days of April. The Bank of Korea last week lowered its 2019 forecasts for economic growth and inflation.


Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.