United States:
Trade War Winner Is Who Loses Least as U.S. Duties Loom
U.S. President Donald Trump’s assertion that trade wars are “good, and easy to win” is fake news if economists are to be believed. The victor in an economic war of attrition will instead be which nation loses least. The first salvos are set to be launched this week as America and China prepare to slap duties on each other, risking a spiral of tit-for-tat tariffs that imperils global growth. “Everybody will lose in absolute terms in a trade war,” said Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington. The question is who “will win in relative terms.” Bloomberg Economics reckons the looming U.S. tariffs on $50 billion of Chinese imports and a like-for-like retaliation from Beijing could cost China about 0.2 percentage point of gross domestic product and the U.S. a little less, a manageable amount in both instances. It’s where the dispute goes next that poses a bigger threat. The direct cost to the world’s two biggest economies is probably the most straightforward forecast. From a breakdown in the global supply chain to a ratcheting up of military tension over the South China Sea, the collateral damage represents an incalculable unknown. “I’ve got a fairly high anxiety at this point about how this is all going to play out,” former U.S. Treasury Secretary Lawrence Summers told Bloomberg Television in June.
Europe:
Window Dressing Sees European Banks Cut $145 Billion of Trades
Some of Europe’s biggest banks may have found a perfectly legal way to exploit a weakness in one of the finance industry’s most loathed rules. Euro-area and Swiss lenders cut their short-term borrowings by tens of billions of dollars just before the end of each quarter, improving their reported financial health, only to build them up again in the following weeks, according to the Bank for International Settlements. BNP Paribas SA, Credit Agricole SAand Societe Generale SA regularly shrink such trades, U.S. statistics show. Almost a decade after the global financial crisis, lenders in Europe may be taking advantage of a loophole in the implementation of a key reporting requirement that aims to curb the amount of debt banks take on. While U.S. and U.K. banks must use an average figure over the quarter when reporting the measure, known as the leverage ratio, the Europeans only have to report numbers for the end of a quarter, enabling them to apply “window dressing,” according to a BIS report last month. “It allows banks to provide a picture of their own state to the market that is distorted,” said Francesc Rodriguez-Tous, a finance professor at City University in London. “The leverage ratio is precisely there to ensure that banks don’t game the system.”
Middle East:
Saudi Crude Exports Jump in June as OPEC Oil-Cuts Deal Fades
Crude oil exports from Saudi Arabia surged to a 15-month high in June as the kingdom ramped up production and helped to convince OPEC to boost its overall supply. Observed shipments from the world’s largest oil exporter jumped to 7.47 million barrels a day last month, compared with 7.15 million barrels a day in May, according to Bloomberg preliminary calculations from vessel-tracking and ship-fixture data. An increase in monthly shipments to nations including India and South Africa outweighed a dip in flows to some major destinations such as China and Japan. At least 289,000 barrels a day of cargoes that loaded at Saudi ports on the Red Sea and Persian Gulf in June haven’t yet identified specific destinations. Saudi Arabia had been pushing for the Organization of Petroleum Exporting Countries to agree to an output increase at the group’s meeting in Vienna on June 22, amid production declines from other members. OPEC and allies including Russia agreed to scale back their over-compliance with supply cuts, a move that Saudi Energy Minister Khalid Al-Falih indicated would add close to 1 million barrels a day to the market. He said the kingdom had already begun to boost output in anticipation of OPEC’s decision.
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