Date: September 23, 2019
U.S. Trade Partners Get No Help From Strong Dollar, BIS Says
“The dollar’s strength may be part of reason why the global Purchasing Managers Index, a crucial gauge of sentiment and growth, is languishing near a record low, if research from the Bank for International Settlements is anything to go by. The BIS challenged the widely held idea that a stronger greenback boosts competitiveness of U.S. trade partners, boosting business with the world’s largest economy. Based on the study in its latest quarterly review, the contrary is true. The dollar has gained 3% in the past year in a move that coincided with weakening manufacturing and services around the world as the trade war heated up. “It is when the dollar is strong that PMIs outside the United States are weak,” Hyun Song Shin, economic adviser and head of research at the Basel-based organization, wrote in the report. “This correlation goes against an explanation based on trade competitiveness.” The role of the greenback as an indicator of business activity may boil down to two factors: haven demand and global supply chains, said the BIS, known as the central bank for central banks. Its foreign exchange turnover survey showed the dollar has consolidated its position as the world’s most liquid currency, being one side of 88% of all foreign-exchange trades. When the global economy suffers, the dollar tends to appreciate. Since most trade financing via banks, and the credit needed to fund inventories, tend to be dominated in the U.S. currency, that can tighten financial conditions for companies.”
German Industrial Recession Drags Economy Deeper Into Slump
“Germany’s economy is suffering its worst downturn in almost seven years as a manufacturing slump deepens, raising pressure on the government to add fiscal stimulus. Factory activity shrank at the fastest pace in a decade in September and growth in services softened, according to a monthly report by IHS Markit. There were also further signs that the labor market is taking a hit. That could have an adverse impact on demand and set off a negative spiral for Europe’s biggest economy. The euro fell 0.3%, dropping below $1.10. European stocks declined, with the Stoxx 600 slipping more than 1% as of 10:50 a.m. Frankfurt time. Adding to the gloom, the nation’s VDMA engineering industry group said Monday there’s no turnaround in sight. It predicts production will drop 2% in 2020 after a similar decline this year. The confluence of trade tensions, challenges for the auto industry and looming Brexit are threatening to push Germany into recession after the economy shrank in the second quarter. According to Markit, the economy may struggle to record any expansion at all for the rest of the year. In a sign that the export-driven industrial slump is spreading into the rest of the economy, Markit said jobs growth is stalling after almost six years of uninterrupted growth.”
Chinese Trade Delegation Called Off Farm Visits at U.S. Request
“China’s cancellation of a planned visit to farms in the American heartland was done at the request of the U.S., people familiar with the matter said, indicating it wasn’t caused by a negative turn in the lower-level discussions held in Washington last week. U.S. Trade Representative Robert Lighthizer’s office didn’t find out about the visit until it was set up and subsequently asked the Chinese delegation not to go, one of the people said. The Chinese were told this was because of domestic reasons, another person said. Chinese Vice Premier Liu He plans to visit Washington in the second week of October to meet Lighthizer and Treasury Secretary Steven Mnuchin for high-level negotiations, according to separate people familiar with that planning, and the two sides are aiming for a high-level meeting around Oct. 10. The news about the cancellation came about an hour after President Donald Trump said he wasn’t interested in “a partial deal” with China based on Beijing increasing its purchases of U.S. agricultural products. China’s Vice Agricultural Minister Han Jun, a member of the trade delegation, said Saturday at an event in Washington that the farm tour had been discussed but not finalized, and the U.S. will extend an invitation for another time.“Negotiations on the agriculture area went very well, and the two sides held thorough and candid communication,” Han said at the event, according to Chinese media. He also said China is willing to expand agriculture trade with U.S. and deepen cooperation “on the basis of equality and mutual respect.” ”
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