Overseas Headlines-November 6, 2019

November 5, 2019

United States:

Trump Dealt Loss With Democratic Gains in Deep-Red States

“Republicans suffered setbacks in two states in off-year elections Tuesday, despite President Donald Trump’s efforts to rally supporters to the defense of GOP candidates down the ballot as the 2020 race heats up. A staunchly pro-Trump Republican governor in Kentucky faced what could be an upset loss in his re-election bid. And in Virginia, Democrats seized both houses of the Legislature from Republicans, gaining full control of state government for the first time in 26 years. The losses were largely attributable to local forces. Kentucky Governor Matt Bevin was deeply unpopular and other GOP officeholders did fairly well in the state, home to Senate Majority Leader Mitch McConnell. Virginia Republicans entered the election with only a one-seat margin in each chamber in a state that has become more closely contested in presidential elections. Even so, those races — and other contests in Mississippi and New Jersey that saw no changes in power Tuesday — were embraced by Trump and the Republican Party as key tests of the president’s popularity. With one year until the presidential election, impeachment proceedings in Congress and the Democratic nomination battle just beginning, experts say Tuesday’s results have little predictive value for the 2020 election. “It’s just too far out, and we don’t know what the circumstances will be next year,” said Kyle Kondik of the University of Virginia Center for Politics. With just four states conducting statewide elections on Tuesday, the sample was too small to extrapolate national trends. “These races tend to get a lot of attention, but I don’t think any of the states that we’re watching tonight are going to be any of the most competitive states that are going to be determining the presidency,” Kondik said on Tuesday night. Trump campaigned aggressively for the Republican gubernatorial candidates, flying to Tupelo, Mississippi, last Friday to campaign for Lieutenant Governor Tate Reeves, who won the governorship, and led a rally in Lexington, Kentucky, on Monday for Bevin. “If they lose they’re going to say Trump suffered the greatest defeat in the history of the world. You can’t let that happen to me,” Trump told the audience in Kentucky. He clearly had an eye on election results Tuesday night, tweeting his congratulations to Kentucky Attorney General candidate Daniel Cameron, a Republican who became the first African-American elected as the state’s chief law enforcement officer. “Great going Daniel, proud of you!” Trump wrote. Trump also boasted on Twitter of winning “5 out of 6 elections in Kentucky, including five great candidates that I spoke for and introduced last night.” ”



Europe Warned to Prepare for the Worst as IMF Sees Clouds Darken

“The International Monetary Fund warned Europe to prepare emergency plans for an economic slump, as risks to the region’s outlook spread and monetary policy has all but exhausted its arsenal. “Given elevated downside risks, contingency plans should be at the ready for implementation in case these risks materialize, not least because the scope for effective monetary policy action has diminished,” the IMF said in its Regional Economic Outlook for Europe. “A synchronized fiscal response” may be necessary, the fund said in the report, highlighting the dangers from trade protectionism, a chaotic Brexit and geopolitics. The stark warning comes after the latest economic data showed that the euro-area economy is proving more resilient than anticipated, driven by robust expansion in countries such as France. Still, Germany probably went into a technical recession during the last quarter, while the labor market in the continent’s biggest economy started to deteriorate. And there could more trouble ahead. If the U.K. leaves the European Union in January without an orderly withdrawal agreement, the country’s economic output would be 3.5% lower in two years, according to the IMF’s forecast. The EU economy would be 0.5% smaller in that scenario. Adding to Brexit uncertainty, “the weakness in trade and manufacturing could spread to other sectors — notably services — faster and to a greater extent than currently envisaged,” the IMF said. The report also warns about elevated asset prices in several countries — including in real estate — which are making banks more vulnerable to shocks, such as abrupt declines in risk appetite and tightening of financial conditions. The IMF named Germany and the Netherlands among the countries which should loosen their purse strings to spur growth. Such “measured fiscal expansion” could have positive spillover effects, halting the slowdown, while at the same time reducing external imbalances. Even countries with high deficits and debt should consider a “temporarily slower pace of fiscal consolidation or a temporary expansion” if negative scenarios materialize, according to the fund. Meanwhile, governments should consider “debt management options” to take advantage of ultra-low yields to improve their financing requirements in the years ahead. Despite the side-effects of ultra loose monetary policy on asset prices, the IMF recommends that central banks maintain their accommodative stance to stem the slowdown. The report is the latest to hand ammunition to the European Central Bank, which is battling a persistent backlash against its renewed stimulus measures.”



U.S. Retirement Fund Would Face China Investment Ban Under Bill

“Chinese stocks would be off limits to a U.S. government retirement fund under a bipartisan Senate bill to be introduced Wednesday, aimed at concerns that the investments would undermine national security and contribute to China’s economic and corporate growth. The bill would block the Federal Retirement Thrift Investment Board from allowing its funds to invest in securities listed on mainland Chinese exchanges. Its introduction follows a move by the board to shift one of its funds to an index that includes Chinese companies by next year, although that decision could be delayed. That index includes companies that are under U.S. sanctions and export bans, according to Republican Marco Rubio of Florida and Democrat Jeanne Shaheen of New Hampshire, the lead Senate sponsors of the bill. They say that investing the retirement assets of federal workers in these kinds of companies could be a security risk and goes against U.S. interests. “America’s investors should never be a source of wealth funding Beijing’s rise at the expense of our nation’s future prosperity,“ Rubio said in a statement. He added that the board, which oversees the Thrift Savings Plan for some public sector workers, “should not force U.S. service members and federal employees to unwittingly undermine the American national security interests that they work hard every day to protect.” The proposal comes at a delicate moment for U.S.-China relations, as lawmakers urge solidarity with protesters in Hong Kong at the same time as the Trump administration is trying to finalize a trade deal between the world’s top two economies. Although the bill has bipartisan support, there’s no guarantee that it will be considered by the Senate and put on the floor for a vote. There is some urgency for the measure after the federal retirement fund board decided in 2017 to increase U.S. government workers’ investment exposure to Chinese stocks by mid-2020. Rubio and Shaheen have pressed the board to reverse that decision, repeating that plea in a letter sent before the board’s meeting last week. In a statement for the bill’s introduction Shaheen said: “If the Federal Retirement Thrift Investment Board is going to drag its feet on reversing the decision that would allow this dangerous policy to go into effect, then Congress must act.” The board on Oct. 28 acknowledged concerns that switching the benchmark for its $50 billion TSP I Fund to mirror an index with Chinese assets would undermine U.S. economic and national security, but it didn’t announce a reversal of its 2017 move. A decision on whether to advance the plan was delayed for at least two weeks. The board is expected to address the issue again at a Nov. 13 meeting. The Senate proposal would prohibit TSP funds from being invested in companies on Chinese exchanges unless certain conditions are met and would preclude the savings plan from investing in products or stocks in countries where the Public Company Accounting Oversight Board is restricted from accessing financial accounting information.”


Analyst Certification -This research report is for information purposes only and should not be construed as a recommendation. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.