Overseas Headlines- February 26, 2019

United States:

U.S. Farmers Fear Trump’s Assault on WTO Hurts Them

Donald Trump’s attack on the World Trade Organization has U.S. farmers worried that the president’s ‘America first’ foreign policy approach will hamstring efforts to defend their interests. The U.S. is strangling the ability of the WTO, which oversees the rules for nearly $23 trillion in commerce every year, to resolve disputes among its 164 members. But when the WTO’s appellate body becomes incapacitated later this year, even the U.S. cases, of which there are at least two pending meant to protect American agriculture, would be derailed. “The entire global trading system and the WTO dispute resolution process have been good for U.S. agriculture,” Ben Conner, the vice president of policy at the Washington-based U.S. Wheat Associates, said in an interview. If the two U.S. claims are appealed, they “could be among the first to get stuck in legal limbo without a functioning appellate body,” he said. Agriculture has become a contentious political issue given Trump’s strong support in farm states, as global players such as China and the European Union use their huge consumption of American commodities as leverage in trade negotiations. The trade war has led the U.S. Department of Agriculture to predict that farm exports will fall by $3 billion in 2019 and caused the Trump administration to authorize a $12 billion aid package to help farmers affected by the dispute. A spokeswoman for the U.S. Trade Representative declined to comment on the matter.



 BOE Steps Up Brexit Buffers as Carney Presses No-Deal Warning

 The Bank of England stepped up its defenses against a disruptive Brexit and Governor Mark Carney offered more warnings about the damage that a no-deal withdrawal from the European Union could do to the economy. The central bank will offer lenders extra liquidity provisions around the March 29 exit date, a measure designed to smooth the plumbing of the market operating in times of potential stress. It mirrors its actions around the 2016 referendum. While there’s a chance that Prime Minister Theresa May will delay Brexit and stop the U.K. leaving the EU by the end of March, the BOE’s actions show it’s not taking any chances. Carney has previously said that the financial sector should be able to cushion any blow rather than “amplifying a shock and being part of the problem.” In comments to lawmakers on Tuesday, Carney said it’s certain the economy will suffer if there is no agreement with the EU in place. “If we’re back here in May, and there’s no deal, no transition, I guarantee you the path of GDP will be materially lower than it is in this February forecast now,” he said. His colleague Gertjan Vlieghe added that while businesses want clarity, going for a no deal outcome for the sake of ending the uncertainty would be far more disruptive. “The only way to reassure them is to say, as the governor has been saying, whatever change you are going to make, tell people what the change is going to be then give them several years to prepare for that,” he said. “Don’t change the framework overnight.” Carney’s warnings, which have earned him the ire of pro-Brexit lawmakers, are a familiar refrain, but they carry additional urgency given that there’s barely a month to go before the formal exit date.



China’s Rediscovered Risk Appetite Helps the Central Bank, Too

The return of risk appetite in China is helping fix a problem that the central bank has been facing until now: the difficulty of getting its monetary stimulus out into the real economy. Thanks to the delay on further tariff increases and the various stimulus measures over the past year, risk assets are returning to popularity with Chinese investors. Equities are now considered a better investment than bonds, and corporate bonds are preferred over those from the government and policy banks, according to analysts from China Merchants Securities and Industrial Securities Co. The three main financing channels have seen improvement – the Shanghai Composite Index is up almost 20 percent from last year’s low, the yield on 3-year corporate bonds is dropping faster than that of sovereign debt with the same maturity, and banks extended record loans to companies last month. While there’s probably some seasonal factors in the lending jump, the shift may provide relief to the People’s Bank of China, which is supplying money to financial institutions in the hope it will be transmitted to the real economy. Cash-strapped private and small companies seem to be benefiting. Bill financing, a type of funding often used by those firms, had the biggest single-month jump in a decade in January. While the quick increase has triggered concerns on arbitrage trading, it also met the financing demand of the real economy, the PBOC said. The initial signs that previous pro-growth policies are taking an effect have prompted some to call a bottoming-out. China International Capital Corp.’s chief economist Liang Hong said growth may have hit such a point late last year, and Oxford Economics Ltd said the economy will likely stabilize around the second quarter.


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