Date: August 30, 2018
U.S. Farm Trade Surplus to Shrink as Chinese Tariffs Bite
Agriculture, one of the few areas of the U.S. economy that sells more abroad than it buys, will see its trade surplus shrink next year as shipments to China collapse amid a trade war between the two nations, according to a government forecast. The world’s biggest agricultural exporter will see a surplus of $18 billion in the fiscal year beginning Oct. 1, down 7.7 percent from the current year, the U.S. Department of Agriculture said Wednesday in a quarterly forecast. China, the largest buyer of U.S. farm goods in 2017, is expected to fall to third place this year, after Canada and Mexico, and then to fifth place behind the European Union and Japan, the USDA said. That follows Chinese tariffs imposed on soybeans and pork earlier this year, a move that has depressed prices for both commodities. Shipments to China will plunge 37 percent to $12 billion, according to the USDA. Still, other trading partners including Mexico and Canada will step up purchases, leading to overall exports increasing by $500 million to $144.5 billion. U.S. imports from other nations will rise by $2 billion. “The greatest unknown is China’s demand for U.S. soybeans,” USDA economists wrote in the report. The department also cut its forecast for the trade surplus in the current fiscal year to $19.5 billion, less than the $21.5 billion projected in May. The USDA announced Monday a $4.7 billion round of direct payments to producers damaged by the trade war. Farmer organizations are calling for a speedy resolution to the conflict.
Slide in Euro-Area Economic Confidence Poses Risk to Growth
Euro-area economic confidence continued its slide in August as risks from trade tensions to politics weigh on momentum. The European Commission’s index of household and business sentiment fell for an eighth month to the lowest in a year. Unemployment concerns led to a deteriorating mood among consumers, while confidence also weakened among services providers and manufacturers. Optimism declined in all of the region’s four largest economies. The euro-area economy remains delicately poised as the European Central Bank prepares to wind down its extraordinary monetary stimulus. While policy makers have described the currency bloc’s growth as solid and broad-based, it’s lost momentum since the start of the year, core inflation remains subdued and uncertainty remains heightened from the rise in protectionism. The Commission said the “marked decrease” in consumer confidence was mainly due to a deterioration in the assessment of future unemployment. In July, joblessness probably declined to 8.2 percent, the lowest level in almost 10 years, according to a separate survey before a report on Friday. Manufacturers were more pessimistic about their current order books and stocks of finished products. Services provides predict demand will slide “significantly,” according to the Commission. Renewed political instability also poses a risk. Italian Deputy Prime Minister Luigi Di Maio on Wednesday denied a report that Italy is asking the ECB to launch a new round of quantitative easing, though concerns about the government’s new budget plans have pushed up bond yields. Data on Friday will probably show consumer prices rose an annual 2.1 percent in August, according to a Bloomberg survey. Although that’s higher than the ECB’s inflation goal of just under 2 percent, a gauge that strips out volatile elements such as energy and food is expected to remain stuck at 1.1 percent.
China Banks Managing $16 Trillion Can’t Stop Talking About Risk
The biggest banks on Earth really want the world to know how much they’re paying attention to risk.China’s six largest lenders, which control a combined $16 trillion of assets, mentioned the word almost 1,900 times in their first-half earnings announcements, up about 9 percent from the same period of 2017, according to data compiled by Bloomberg. Bank of China Ltd. said it achieved “new breakthroughs in risk mitigation,” while China Construction Bank Corp. touted its “stringent risk management.” Industrial & Commercial Bank of China Ltd., the world’s biggest lender by assets, said on Thursday that it will “adopt well-targeted solutions to put all types of risks under control.” While it would be easy to dismiss the comments as corporate platitudes, the first-half numbers suggest big Chinese banks are indeed doing a better job of managing risk. Despite China’s slowing economic growth and record pace of corporate defaults, the lenders reported lower bad-debt ratios as they cut exposure to the hardest-hit industries and increased recovery rates. China’s government has made controlling financial risk one of its biggest priorities as President Xi Jinping tries to prevent a record buildup of corporate debt from tipping the economy into a crisis. Even as authorities have appeared to ease up on the campaign in recent weeks to bolster short-term growth, the nation’s banking regulator reiterated this week that lenders “should follow the central government’s master plan in defusing financial risks.”
Turkish Lira Extends Slumps as Investors Wait for Policy Action
The lira headed for a fourth day of declines as the latest measures by the central bank failed to stop selling pressure. The dollar gained as much as 3.7 percent to 6.7107 against the lira, which was the worst performer among emerging markets. Trade was thin during a public holiday in Turkey. The central bank has announced a series of steps in recent weeks to try to stem a more than 40-percent slide in the currency this year, having reintroduced borrowing limits for overnight transactions at its interbank money market on Wednesday. That effectively tightened liquidity, though investors are looking for rate hikes to restore market confidence. “The market still expects the central bank to raise interest rates significantly on September 13, instead of backdoor tightening,” said Piotr Matys, an emerging-market currency strategist at Rabobank. “This would have to be accompanied by fiscal tightening and economic reforms, and perhaps more importantly Ankara should make an effort to defuse diplomatic tension with Washington.” Investors are concerned about U.S. sanctions announced earlier in August over the detention of an American pastor, as well as double-digit inflation and a deepening current-account deficit. The central bank’s monetary policy committee will meet next on Sept. 13.