Overseas Headlines- August 28, 2019

Date: August 28, 2019


United States:

 A Dollar Rising Into a Possible U.S. Recession Could Be a Bad Omen

“The dollar has been ascendant in 2019 and forecasts for a U.S. recession are growing louder. If the greenback’s strength keeps up and the economy does shrink, some experts are worried this combination will make it harder for the economy to claw back out. A Federal Reserve Bank of New York indicator shows more than 30% odds of a downturn in the next 12 months. Exports and investments are critical parts of U.S. gross domestic product, so a dollar that climbs as rates fall — and traders expect the Fed to keep reducing them — would leave just consumers and fiscal policy to power growth. Not only does the U.S. currency’s climb tend to erode the profits of American multinationals, but it also raises the costs of foreign corporations with trillions of dollar-denominated debt. The pressure from greenback strength on other economies could even encourage those countries to join a U.S. attempt to weaken it. “If you start to see the U.S. economy really begin to decelerate and the dollar continue to strengthen, that would suggest a dislocation with fundamentals that is unsustainable and will get the attention of policy makers,” Bank of America senior foreign-exchange strategist Ben Randol said in a phone interview. “If the U.S. can make its concerns heard with its international counterparts, it can potentially get some support for a coordinated intervention that suppresses the strength of the dollar.” It will take two more months to see which one of two historical patterns will play out, Randol says. The first is that the dollar weakens, as it did ahead of the 1990-91 and 2007-09 recessions. Or the upward move could continue, as it mostly did before, during and after the 2001 downturn.”




U.K.’s Boris Johnson Seeks Suspension of Parliament Ahead of Brexit

“Prime Minister Boris Johnson asked Queen Elizabeth II to suspend the U.K. Parliament from mid-September to mid-October — a move that could hamper lawmakers’ efforts to block a no-deal Brexit and even trigger a constitutional crisis. The pound dropped. “This is a new government with a very exciting agenda,” Johnson said in a pooled TV interview. “We need new legislation, we’ve got to be bringing forward new and important bills and that’s why we’re going to have a Queen’s Speech and we’re going to do it on Oct. 14.” Under the plan, all legislative business would be suspended from Sept. 12, a U.K. official said, until the Queen’s Speech on Oct. 14 kicks off a new session of Parliament. Johnson said he is not seeking a general election and there will be “ample time” for lawmakers to debate Brexit. The timing means Parliament will resume days before a crucial European Union summit on Brexit scheduled on Oct. 17-18. But while Johnson said it is normal for a new government to want to press ahead with its own agenda with a Queen’s Speech, the timing is deeply controversial. The premier has pledged to take the U.K. out of the EU on Oct. 31 without a divorce deal if necessary, the scenario most feared by businesses and opposed by a substantial number of British lawmakers who planned to use the next few weeks in Parliament to try to prevent it. Johnson’s team see it as a “useful political side effect” of the suspension that it would deny time to lawmakers mobilizing to stop a no-deal Brexit, the BBC’s Laura Kuenssberg said on Twitter. The pound fell as much as 1.1% against the dollar, the most in a month, as traders perceived an increased risk of a no-deal split. Parliament is due to return on Sept. 3, and was only going to sit for two weeks before taking a three-week recess to allow MPs to go to their annual party conferences. That would have seen it returning on Oct. 7. But Johnson’s delay will buy him more than a week. A Queen’s Speech is usually followed by four or five days of debate. MPs who oppose a no-deal Brexit have feared Johnson would attempt to stop them meeting, and won’t take it lying down. Some have talked of simply continuing to meet in another building, and defying ministers. Parliament has also passed measures aimed at forcing the government to let it meet. They could still move against Johnson next week, possibly with a vote of no confidence. But even that could be difficult, according to Martyn Atkins, a parliamentary clerk. If the Queen has already agreed to suspend parliament, he said on Twitter, that would still apply, meaning rebels would have until the suspension date to form a new government.”




China Prepares for the Worst on Trade War After Trump’s Flip-Flops

“Perhaps nobody was more surprised to hear that China had called President Donald Trump’s administration to restart trade talks than the government in Beijing itself. After a weekend of confusing signals, Trump’s credibility has become a key obstacle for China to reach a lasting deal with the U.S., according to Chinese officials familiar with the talks who asked not to be identified. Only a few negotiators in Beijing see a deal as actually possible ahead of the 2020 U.S. election, they said, in part because it’s dangerous for any official to advise President Xi Jinping to sign a deal that Trump may eventually break. In off-the-cuff remarks to reporters at the Group of Seven summit in France on Monday, Trump claimed that Chinese officials called “our top trade people” and said “let’s get back to the table.” In subsequent appearances he portrayed the outreach as evidence China was desperate to make a deal: “They’ve been hurt very badly, but they understand this is the right thing to do.” It all made for splashy headlines and momentarily boosted stocks, but nobody in Beijing officialdom appeared to know what he was talking about. Even worse, his efforts to depict China as caving in negotiations actually confirmed some of their worst fears about Trump: that he can’t be trusted to cut a deal.  “Trump’s flip flop has further enlarged the distrust,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “This makes a quick resolution nearly impossible.” Two Chinese officials likened the country’s approach to the U.S. during the Korean War, saying it consisted of fighting while talking, and using fights to speed up talks. China has prepared contingency plans in case of a no-deal scenario, three officials said, including putting U.S. companies on its unreliable entity list and stimulating the economy. China’s foreign ministry on Tuesday again said it was unaware of the phone calls mentioned by Trump, reiterating a statement immediately after his remarks. One of the first to call out Trump was Hu Xijin, chief editor at the Communist Party-backed Global Times newspaper, who said Monday that the U.S. president was exaggerating the significance of low-level talks and China’s position hadn’t changed. While officials in Beijing are still willing to engage in trade talks, they are concurrently girding for a decoupling from the world’s biggest economy — an effort made all the more acute when Trump “ordered” U.S. companies via Twitter to look for alternatives to China. After trade talks broke down in May, Xi renewed calls for China to pursue “self-reliance” in key technologies and even called on citizens to join a “new Long March.” “A gradual decoupling is happening de facto because companies have to make alternative plans when there’s so much uncertainty,“ said Tim Stratford, chairman of the American Chamber of Commerce in China and a former assistant U.S. trade representative.”