Date: August 21, 2019
Trump Dismisses Recession Risk But Floats Ideas for Stimulus
“President Donald Trump has consistently rejected a growing number of forecasts that his trade war with China and slowing global growth are pitching the U.S. economy toward recession. But he’s also spending a lot of time outlining policies to stave it off. Speaking to reporters Tuesday in the Oval Office, Trump said he’s open to a range of possible actions, including a payroll tax cut or bypassing Congress to reduce taxes by indexing capital gains. He repeated his demand that the Federal Reserve slash interest rates to bolster the economy. Yet he also suggested those actions aren’t necessary. “We’re very far from a recession,” Trump said. His comments Tuesday illustrate the balance the White House is trying to strike between touting growth under the Trump administration and laying the groundwork for possible fiscal stimulus if the economy falters. With the 2020 campaign heating up, the growing odds of an economic contraction threaten to crush Trump’s hopes for a second term. Chances of a recession within the next year have risen to 35%, according to an August survey of economists by Bloomberg News. Trump also defended his trade war with China — a dispute economists point to as a primary risk for global economic growth. He called any short-term pain the U.S. has to pay from the trade war “irrelevant.” “My life would be a lot easier if I hadn’t taken China on,” Trump said. “But I like doing it because I have to do it.” Economic trends tend to predict election outcomes, and recessions can be radioactive for the party in power. In the last century, the only elected presidents who lost re-election did so after overseeing a recession — George H.W. Bush in 1992, Jimmy Carter in 1980 and Herbert Hoover in 1932. For Trump, the economy may be even more important than for his predecessors. His low-40s approval rating is already perilous for an incumbent, and the economy is the main factor keeping him afloat. He scores poorly on most other policy issues and on questions of leadership and character. “I think the word recession is a word that’s inappropriate ‘cause it’s just a word that certain people — I’m going to be kind, certain people and the media are trying to build up, because they’d love to see a recession,” Trump said Tuesday. Yet, when asked about the economy, the president said he and his advisers have discussed “all types of options,” including the payroll tax cut, which supports Social Security and Medicare. “We’re looking at various tax reductions” but the White House does that “all the time,” he said. “I’m not talking about doing anything at this moment.” White House officials say the president has decided against cutting payroll taxes for now. One person familiar with the internal discussions said the idea had been floated by Trump’s top economic adviser, Larry Kudlow, but that even the suggestion of it had caused others to bristle. They said it would send a message to the outside world that the administration is worried about the state of an economy that Trump continues to insist is strong. While the president remains bullish, he and his economic advisers have been casting about for ways to cut taxes to foster growth amid troubling signs. Business investment is cooling and manufacturing has weakened. U.S. factory activity deteriorated in July to an almost three-year low, according to the latest figures from the Institute for Supply Management. This isn’t the first time Trump has suggested sweeping tax cuts while facing political headwinds. Before the mid-term elections last fall, he floated a 10% middle class tax cut — much to the surprise of his own aides and allies in Congress. He never released any specifics about the cut, and after Republicans lost control of the House in the election, Treasury Secretary Steven Mnuchin said the idea was no longer being pursued. Any new Trump tax cut plan is not likely to be welcomed on Capitol Hill. The Constitution mandates that tax legislation originate in the House, where Speaker Nancy Pelosi will refuse to consider bills that could buoy the re-election chances of the president and his party. Even congressional Republicans are hesitant to put forward tax cut legislation, worried that would suggest that the economy is faltering heading into the 2020 campaign season.”
U.K. Budget Deficit Soars as Britain Prepares for Brexit
“U.K. government borrowing surged in the first four months of the fiscal year, a reminder of the vulnerability of the public finances as Britain braces for a no-deal Brexit. The budget deficit between April and July stood at 16 billion pounds ($19.4 billion), 60% more than the same period last year, Office for National Statistics figures published Wednesday show. Borrowing is rising much more quickly than budget officials forecast in March as revenue from taxes fails to keep pace with spending, a possible sign that the economic downturn in the second quarter is taking a toll. That’s an unwelcome fiscal inheritance for Prime Minister Boris Johnson, who has promised 20 billion pounds of tax cuts plus extra money for policing, health care and schools. The public finances could take a further 30 billion-pound hit if he sees through his threat to let Britain crash out of the European Union without a deal on Oct. 31, forecasters estimate. Years of post-crisis austerity have brought down the deficit from almost 10% of GDP in 2009-10, the highest in peacetime history, to a 17-year low of just 1.1% last year. July is typically a good month for the public finances, as the Treasury benefits from larger-than-normal tax payments. But revenue exceeded spending by just 1.3 billion pounds last month, compared with a surplus of 3.6 billion pounds a year earlier. Tax revenue fell 0.5%, though there was a modest 2.4% increase when gilt-interest revenues transferred from the Bank of England are excluded. Spending jumped 6.5%, boosted by departmental outlays and capital investment. Without a significant improvement, borrowing for the year as a whole appears likely to exceed the 29.3 billion pounds forecast by the Office for Budget Responsibility in March. The deficit fell to 23.6 billion pounds in the 2018-19 fiscal year.”
Asia’s Ugly Exports Are About to Look Even More Hideous
“In Asia, one surprise increase in export growth is what passes for relatively good trade news these days. Thailand’s exports unexpectedly rose, jumping 4.3% in July from a year earlier. But that’s cold comfort for the continent’s powerhouses that now have to fight unfavorable base effects on top of all the other global trade pressures: muddled messages on U.S.-China talks, Japan-South Korea tensions, and a brewing drama between the U.S. and Europe, to name just a few. Taiwan and South Korea already had set the darker tone for the week, with contractions in export orders for Taiwan in a report Tuesday, and figures Wednesday showing South Korea’s latest first-20-days gauge shrinking, too. For almost every month this year, the two economies have shared full-month export contractions. Looking ahead, it’s all about that base effect. The year-earlier export comparisons for all three economies are set to look even uglier in the months ahead. Thailand’s August 2018 exports level was its highest in records back to 1991. September for South Korea was the best first-20-days performance since at least late-2003, and Taiwan’s export orders for October 2018 shattered every record dating to 1984. The Taiwan and South Korea news followed numbers Monday showing Japan’s merchandise exports dropped for an eighth straight month. It all fits into the drumbeat of gloom illustrated by Bloomberg’s Trade Tracker, which now has four of 10 gauges in below-normal territory. Here’s why it matters for everyone. Emerging Asia’s high-growth, trade-heavy economies are critical to keeping the world economy from stumbling. So the whimpers from a dynamic region like Asia are ominous for global growth. The developed engines of Europe and U.S. — with their aging populations, crumbling infrastructure and elevated debt — won’t be the locomotives forever.”
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.