CHOPPY RECOVERY AHEAD, CANADA’S CENTRAL BANKS WARNS. Canada’s economy will show a surge of strength in this quarter, but the ensuing recovery will be slow and unsteady, the nation’s central bank has warned.
Household spending was stronger than expected over the summer, presaging a more robust third quarter than analysts had forecast as consumers vent pent-up demand.
Canada’s economy crashed at an annualized rate of 38.7 percent during the second quarter as the government locked down businesses to thwart the COVID virus.
As the year progressed, the Bank of Canada cut its overnight interest rate to 0.25 percent, the lowest rate the bank considers to be practical. It also launched a massive bond-buying program to shore up the country’s markets.
The bank said the asset purchase program will continue until the recovery is “well under way,” leading analysts to assume that interest rates will remain at rock bottom for the foreseeable future.
TOO-STRONG EURO ENDANGERS RECOVERY. As of 1 September, the euro had risen as much as 14 percent against the dollar this year, at one point topping $1.20.
Investors’ bets that the euro will continue to gain strength against the dollar are at record-high levels.
But a pricey euro makes European exports more expensive abroad and threatens to hobble the region’s economic recovery.
For that reason, the euro’s rise has worried officials at the European Central Bank (ECB), who have begun talking about the dangers of a too-strong currency.
“The appreciation of our currency has an impact on inflation,” warned ECB president Christine Lagarde, adding the bank’s governing council had discussed the widening currency gap at length.
On the day she spoke, the euro gained another penny on the dollar, rising to $1.19.
The bank has few tools to rein back the euro’s momentum, which is due more to the U.S. Federal Reserve having flooded the world with cheap dollars at record-low U.S. interest rates.
The Fed policy has shaved about 3.7 percent from the dollar’s value this year, economists say.
Also, the Fed has said it is willing to see inflation temporarily surpass its 2-percent target rate.
Trying to deter investors from driving up the euro, Christine Lagarde, ECB president, emphasized that the bank is ready to loosen policy to keep the recovery going, but the bank will not change its tactics any time soon.
Deliberately devaluing the euro would violate an informal agreement among the world’s developed economies to not manipulate currency values, which would advantage one country or central bank at the expense of the rest.
Some investors expect the ECB to cut interest rates by another 0.01 percent to -0.06; others expect it to leave interest rates alone but expand its €1.35-trillion bond-buying initiative as a way to counter deflation, which would make imported goods cheaper.
“The ECB has a huge challenge in containing the euro’s strength against the dollar under the new Fed approach,” said Krishna Guha, global strategist at Evercore ISI.
The surging euro also is nearing record levels on a “trade-weighted basis,” meaning it is gaining strength not only against the dollar, but also against the currencies of China and others among the Eurozone’s trading partners.
That makes Europe’s exports more expensive abroad, crimping sales, shrinking profits, and hampering the region’s ability to rebound from the pandemic-inspired economic shutdown.
For every 10 percent the euro rises against the dollar, Eurozone exporters lose about 3 percent in profits, says Lars Kreckel, global strategist at Legal & General Investment Management. Similarly, every time the dollar gains 10 percent in value, S&P-listed companies lose roughly 2 percent in profits.
Reflecting the euro’s strength, the Euro Stoxx broad market index has lost about 11 percent of its value this year, while the U.S.’s S&P index has gained about 6 percent.
Corporations showing $250 million or more in earnings typically deal in 40 different currencies and 200 different cross-currency trades, explained Wolfgang Koester, a strategist at Kyriba, which makes financial software. The euro’s strength raises issues that are “much more complicated” than just its relationship with the dollar, he pointed out.
TREND FORECAST: As the “Greatest Depression” worsens, we forecast the ECB will expand its €1.6-trillion rescue plan, which will in turn dilute the euro’s value but also sink the region’s nations deeper into debt, a move that France, Germany, and Scandinavian countries are likely to oppose.
CHINA’S EXPORTS RISE 9.5 PERCENT IN AUGUST. Chinese businesses exported 9.5 percent more in August than in August 2019, measured in dollar volume, beating analysts’ forecasts of a 7.5-percent rise and posting the best figure so far this year.
The figure reflects strong sales of electronics and medical equipment, areas key to managing the global pandemic and the resulting shutdown.
August’s was the third consecutive monthly gain, after a 7.2-percent rise in July and 0.5 percent in June. The steady progress signals China’s apparent recovery from the economic shutdown and is buoying analysts’ hopes for a strengthening global economic revival.
China’s share of world trade has reached a record 17.2 percent, according to Oxford Economics. In 2019, its share was 13.9 percent.
China’s trade surplus with the U.S. was $34.2 billion, the highest since November 2018.
CHINESE AUTO SALES: PEDAL TO THE METAL. China’s consumers bought 1.2 million passenger vehicles in August, 8.9 percent more than in August 2019 and the most since May 2018.
The strong sales followed 7.7-percent year-on-year gain in July after China’s retail car market crashed in 2020’s second quarter, losing 3.4 percent compared to the same period last year.
China’s passenger vehicle sales in 2020 will reach 92 to 94 percent of 2019’s total, the China Passenger Car Association (CPCA) has predicted.
Since China closed its borders to contain the virus, more people are expected to travel domestically and the recovering economy will boost confidence in the future, luring more people to buy cars, the CPCA said.
Dealers’ major discounts and government rebates and subsidies on some models also will help jack up sales.
The country’s vehicle manufacturers had sped out of the lockdown, producing more cars than Chinese consumers were buying, forcing companies and dealers offer bargains to clear inventories.
The makers now have cut production by 0.2 percent in August, year on year, to tighten supply, allowing prices to rise as demand continues strong.
TREND FORECAST: The 20th century was the American century. Throughout the century, the business of America has been war.
The 21st century will be the Chinese century. The business of China is business.
For nearly a decade, Gerald Celente has forecast societies that would thrive in the age of globalization and economic contractions would be “self-sustaining.” The Chinese government’s “dual circulation” policy, articulated by its leader Xi Jinping, is that it must retool in a world of declining economic demand and rely less on exports and more on robust domestic demand, thus becoming more self-sustaining. While most of the world is still locked down, China quickly opened up for business.
Unlike the United States, where the Bigs keep getting bigger and the one percent has gotten over a trillion dollars richer since the March lockdown while majority of people got poorer, in China, small and medium size businesses (SMEs) represent more than 90 percent of the enterprises in the country and contribute over 60 percent to the GDP.
TRENDPOST: Who owns the Federal Reserve? This is from Institutional Investor:
“Under the Federal Reserve Act of 1913, each of the 12 regional reserve banks of the Federal Reserve System is owned by its member banks, who originally ponied up the capital to keep them running.
The number of capital shares they subscribe to is based upon a percentage of each member bank’s capital and surplus.
But the New York Fed – by far the most important of the regional banks – as a matter of policy has previously not disclosed the capital share holdings of its 70-plus member banks. A New York Fed spokeswoman in September declined to comment on the record about the matter.
Now, thanks to a Freedom of Information Act request filed late last year by Institutional Investor, we know the truth.
‘II’ asked the New York Fed for the capital stock holdings of its members as of year-end 2018, as well as for each year going back to 2007.The bank responded with copies of what it calls its Capital Stock Master Report, a compendium of shareholdings of member banks, for each of those years.
The big reveal for year-end 2018: Citibank, the No. 1 institution on the roster, held 87.9 million New York Federal Reserve Bank shares – or 42.8 percent of the total.
The No. 2 holder stockholder was JPMorgan Chase Bank, with 60.6 million shares, equal to 29.5 percent of the total. In other words, the two banks together control nearly three-quarters of the regional bank’s capital shares.”
Thus, in America, as clearly evidenced by the Federal Reserve pumping in some $29 trillion to bail out the “Too Big To Fail” banks when the Panic of ’08 hit or inject tens of trillions into the repo markets to keep the Wall Street money junkies gambling… while in in China, the banks not only pump money into the big, connected firms but into the SMEs as well.
SOUTH AFRICA’S ECONOMY SHRINKS BY HALF. South Africa’s economy shrank by an annualized rate of 51 percent in this year’s second quarter, its worst performance in at least a century and the worst among any major economy this year.
Manufacturing shed 74.9 percent of its productivity, compared to a year earlier; mining, 73.1 percent; transport, storage, and communications 67.9; and trade, catering, and lodging 67.6 percent.
The 15.1-percent gain in agricultural output during in April through June did little to offset the larger damage.
Twenty-seven percent of the country’s workers lost income in April and 47 percent of households ran out of money to buy food, according to a national survey.
The country locked down in late March, banning sales of alcohol, tobacco, and anything the government did not consider essential. The shutdown slowed the spread of COVID, but virus cases rose when the economy was reopened in July.
Currently, South Africa has the seventh largest COVID caseload in the world.
In July, South Africa received a $4.3-billion emergency loan from the International Monetary Fund.
TREND FORECAST: As reported in the Trends Journal, riots and demonstrations were raging across South Africa in 2019, with people taking to the streets to protest government corruption, violence, crime, and lack of basic living standards.
As with other nations which were reeling in unrest, as detailed in one of our Top Trends, “2020 NEW WORLD DISORDER,” the protests were quelled from India to Chile and from Algeria to South Africa, when rulers used the COVID War as the excuse to prohibit mass gatherings.
The South African economy, as with other emerging markets, will continue to decline as the “Greatest Depression” worsens. Despite the lockdown orders, once again, riots will erupt, and the battle between ruling governments and the people will escalate.