Overseas Headlines- September 12, 2018

Date: September 12, 2018

United States:

Florence to Batter U.S. Data But Harm to Economy Likely Small

The economic impact of Hurricane Florence is unlikely to be large but could muddle U.S. data for months, judging from past experience. Last year, Hurricanes Harvey and Irma constrained activity in the third quarter of 2017 and sparked rebuilding later in the year and well into 2018, making it hard to get an accurate and timely assessment of the impact on quarterly gross domestic product growth. That will be a challenge again with Florence, forecast to be the worst storm to hit North Carolina in 64 years, and the storm season is far from over. Data on employment, consumer spending and manufacturing may also become trickier to analyze as economists gauge impacts of tax cuts and a trade war. “The first place you’ll likely see it is in initial jobless claims,” Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said in reference to Florence. At the same time, major storms’ effects on the broader economy tend to be “pretty small, on aggregate.” When Harvey made landfall on Aug. 25 along the Gulf Coast in Texas last year, initial filings for unemployment benefits surged in the week ended Sept. 2 by the most since November 2012. Applications had similarly jumped following Superstorm Sandy’s hit to the Northeast in 2012. Any spike this time would be temporary, and unlikely to cause concern, as jobless claims are at the lowest level since December 1969.



Russians May Have to Settle for Rubles If U.S. Dollar Ban Hits

Russians with bank accounts in dollars may find they can only make withdrawals in other currencies if new sanctions proposed by U.S. lawmakers take effect. “I am sure that all the clients of all banks should receive their money back; that’s the principle approach,” VTB Group Chief Executive Officer Andrey Kostin said on Wednesday. “How, in which currency, is a different story.” The U.S. Senate is considering punishing the Kremlin for alleged election meddling, including a fresh raft of measures dubbed the “bill from hell.” This could bar Americans from buying new issues of Russian sovereign debt and ban Russia’s largest state banks, such as VTB, from using dollars. About 20 percent of Russians’ savings are held in foreign currencies, according to central bank data. The three biggest retail deposit holders — Sberbank PJSC, VTB and Rosselkhozbank JSC — all are listed in the Senate’s draft law as potentially facing a ban on dollar transactions. Sberbank, which holds 45 percent of Russia’s retail deposits, had an outflow of 1.1 percent from individuals’ accounts in August, when calculated at a constant exchange rate. Kostin said VTB didn’t experience any unusual withdrawals last month. “We are getting ready for the development of any situation, and definitely I think the Russian banking sector, with the help of the Russian central bank, can stand further sanctions,” Kostin said on Bloomberg TV.



China Bank Lending Slowed in August as Bond Issuance Surges

China’s broadest measure of new credit expanded as companies issued more debt, though the expansion in new bank loans slowed, showing that banks are still cautious about extending credit and taking on risk. Aggregate financing stood at 1.52 trillion yuan ($221 billion) in August, the People’s Bank of China said Wednesday, compared with an estimated 1.30 trillion yuan in a Bloomberg survey and 1.04 trillion yuan in July. An increase in corporate bond financing supported the larger-than-expected rise, while the shadow banking sector continued to shrink. New yuan loans stood at 1.28 trillion yuan, versus a projected 1.40 trillion yuan and 1.45 trillion yuan last month. Broad M2 money supply increased 8.2 percent, compared with a forecast 8.6 percent. China’s credit growth has been sluggish for months as a multi-year campaign to slow debt growth squeezed shadow banking and hurt people’s appetite for risk. As the trade conflict with the U.S. intensifies, policy makers have loosened monetary policy and eased regulatory requirements on banks to encourage lending. August’s credit data is “up arrow overall” but the risk appetite remains low, and the rising bill financing indicates banks are reluctant to lend, while slower M1 growth suggests companies’ willingness to invest is low, said Xia Le, chief Asia economist at BBVA Hong Kong. “Monetary policy is in transition to an easier bias. Credit growth will see greater support in coming months.” Sales of short-term bills by non-financial companies surged to the highest since February 2009. “Bill financing as short-term funding is often used to meet banks’ credit quota when the target isn’t being met, but its credit expansion in the real economy is less than other forms of lending”, Xia said.