Overseas Headlines- June 25, 2019

United States:

 Pain From Trump’s China Tariffs Spreads, Reshaping Global Trade

“President Donald Trump often cites China’s massive exports to the U.S. as a grave injustice hanging over the world economy. But lately it pays to look at Chinese imports for the pain that his tariff wars are inflicting on global growth. The world’s biggest trading nation last month saw imports from Japan, South Korea and the U.S. fall sharply from a year earlier, according to official data. The 27% fall from the U.S. is perhaps not surprising given a year of tit-for-tat tariffs, but a drop of 16% from Japan and 18% from South Korea is reason to consider the broader effects of Trump’s trade battles. Such data illustrate why trade is at the top of the agenda for this week’s Group of 20 meeting of leaders who preside over more than three-quarters of the global economy. While much of the focus will be on Trump and Chinese President Xi Jinping’s ability to resume talks, the other leaders in attendance have their own stakes to worry about. Global commerce is “being hit by new trade restrictions on a historically high level,” World Trade Organization Director-General Roberto Azevedo said in a report Monday that pointed to an increase in protectionist measures by G20 countries. “This will have consequences in increased uncertainty, lower investment and weaker trade growth.” Almost every day brings fresh data on the economic impact. An analysis released on Monday by Bloomberg Economics of the more than 10,000 Chinese product categories hit by tariffs already found they had led to a 26% fall in the value of their exports to the U.S. in the first quarter of 2019. That was before the recent breakdown of U.S.-China talks and an increase May 10 from 10% to 25% of tariffs on products worth some $200 billion in annual trade before the conflict, the largest tranche of $250 billion in imports affected. Trump has also threatened to hit a further $300 billion in imports from China.”




 Europe Earnings Recession Risk Is Back as Stock Rally Stumbles

“Last week’s stock optimism may be short-lived as investors head into an earnings season that looks set to deliver more bad news than good. The pace of profit downgrades is exceeding upgrades by the most since January, according to Citigroup Inc.’s earnings revisions index for continental Europe, posing a threat to this month’s equity rally spurred by dovish central bank comments. Sanford C. Bernstein strategists said on Monday that although global earnings recession isn’t their base-case scenario, there’s a “real” possibility of one in Europe amid trade-war and policy uncertainty. Although the euro-area economy showed signs of stabilization in June amid improving manufacturing data in Germany and France, there’s growing concern that the rest of the region is sliding closer to stagnation. “The damage from the trade war is likely to be seen most clearly in Europe. Europe is highly dependent on global trade and capex – the two components of global growth that are faltering,” said Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management. While carmakers rallied after U.S. President Donald Trump last month delayed tariffs on imported cars from the European Union by 180 days, the unresolved issue continues to weigh on sentiment due to the industry’s importance for German and French economies. The Stoxx Europe 600 on Tuesday was down for the third day, the longest losing streak since March. The market had rallied 4.6% through last Thursday, poised for the best monthly advance since January, before dissipating optimism over a breakthrough in U.S.-China trade talks at the G-20 meeting fueled some profit-taking. More than a 180 companies in the Stoxx Europe 600 Index are scheduled to report earnings in the next month, with Hennes & Mauritz AB due to post second-quarter results later this week. Banking and capital goods tend to underperform during earnings recessions, according to Bernstein, whereas consumer staples and healthcare have a “strong and consistent” track record as a hedge in such times. Energy stocks should be more resilient thanks to high dividends and balance sheets, said strategists led by Inigo Fraser-Jenkins.””




 Indonesia Showers Property Buyers With Waivers to Spur Economy

“Indonesia slashed income tax on the sale of luxury properties in the latest bid to spark a revival in its stagnant property sector and support growth in Southeast Asia’s largest economy. The tax on income from sales of luxury houses and condominiums priced at 30 billion rupiah ($2.1 million) or more was reduced to 1% from 5%, according to a statement issued by the Cabinet Secretariat Tuesday. The threshold for the application of the lower tax, effective from June 19, was raised from 10 billion rupiah previously, it said. President Joko Widodo is seeking to stimulate the property sector in the hope of the industry’s multipliers effect on sub-sectors such as cement, ceramics, electronics and furniture helping overall economic growth. The government is extending tax breaks to the luxury property segment as it has seen sluggish sales in the past five years. Growth in the overall property sector eased to 3.58% last year from 3.68% in 2017, according to data from statistics bureau. As the mass-housing market makes up a large part of the industry, the government has also waived value-added tax up to a certain value for those properties. The series of tax incentives for housing shows the government is complementing earlier moves by Bank Indonesia to relax the loan-to-value ratio for home-buyers, according to PT Bank Central Asia Chief Economist David Sumual. The measures may help property sector expand in the short term, he said. ”