[Weekly Monitoring] Weekly Global Dynamics
2019.06.03-2019.06.09 Global Major Events
Global manufacturing PMI shows the weakest posture in the past seven years.
The World Bank lowered its global economic forecast for 2019 and kept its forecast for the United States and China unchanged.
IMF warns of trade disputes and lowers economic growth expectations of China and the United States.
Global interest rate cuts continue.
Australia’s central bank cut its cash benchmark interest rate to a record low of 1.25%.
India cut interest rates by 25 basis points to 5.75% for the third time during the year, and its monetary policy stance became loose.
Chile’s central bank unexpectedly cut interest rates by 50 basis points to 2.5%, the biggest drop in a decade, which shocked the market.
[Opinion] Australia, India and Chile cut interest rates one after another this week. Unemployment rate and inflation are the main reasons for the Australian central bank to adjust its monetary policy; India’s economy continues to slump, and interest rate cuts are expected; Due to the tense global trade situation, Chile’s copper exports were negatively affected, and Chile’s sharp interest rate cut shocked the market. Prior to May, five countries in the world cut interest rates successively, namely Malaysia, New Zealand, the Philippines, Iceland and Sri Lanka. This week, the Australian central bank cut interest rates, which may fully open the era of global interest rate cuts.
America
The final value of manufacturing PMI in the United States hit a new low in nearly 10 years in May.
US non-agricultural data was weak in May, and US debt prices soared.
[Comment] Some recent economic data in the United States are unsatisfactory, with retail sales, consumption data and personal consumption expenditure all below market expectations. This non-agricultural data suggests that US economic growth is losing momentum. Since this employment report does not reflect Trump’s announcement to consider imposing tariffs on Mexico, the prospects for US economic growth are worrying.
Europe
In May, the initial CPI in the euro zone increased by 1.2% year-on-year, and the final GDP in the first quarter was 0.4% quarter-on-quarter.
The European Central Bank revised its forward-looking guidance again and kept interest rates at least until the first half of 2020.
Britain’s manufacturing PMI fell to 49.4 in May, hitting a 34-month low.
Asia-Africa region
South Korea’s GDP in the first quarter fell by 0.4% month-on-month, compared with the previous estimate of 0.3%.
South Africa’s GDP in the first quarter shrank by 3.2% year-on-year, the biggest decline since 2009.
Commodity dynamics
OPEC’s oil export revenue increased to the highest level since 2014 last year.
The International Energy Agency (IEA) predicts that by 2024, China will account for more than 40% of the global natural gas demand growth.
I. Major global events
Global manufacturing PMI shows the weakest posture in the past seven years.
According to the latest data on June 3rd, the global manufacturing industry reached its weakest state since 2012 in May this year, which became the victim of increasing trade tensions and gave people more reasons to worry that the global economy was weakening.
Due to the weak manufacturing industries in Germany, Japan and the United Kingdom, and the manufacturing index in the United States falling to a 10-year low, IHS Markit’s global manufacturing purchasing managers index fell below the watershed of 50 in May and fell to 49.8.
The data highlights the growing threat posed by the escalation of the trade situation, exacerbating market concerns, stimulating the safe-haven demand for bonds and pushing the stock market lower. Morgan Stanley warned that investors still underestimated the seriousness of the situation. If the trade situation worsens further, the global economy will fall into recession within nine months.
United States: Markit announced that the manufacturing PMI of the United States in May was 50.5, which was about 2 percentage points lower than the previous value and the lowest level since September 2009. A key factor dragging down the data is the slowdown in output growth. At the same time, the new order sub-index fell into the shrinking range for the first time since August 2009.
In addition to the United States, the manufacturing industries in Germany, Japan, Britain, South Korea and Singapore also performed poorly.
UK: Among them, due to the uncertainty of Brexit, the manufacturing PMI in the UK shrank for the first time in nearly three years in May. According to the analysis, this move was originally planned to leave the EU before March 29, and manufacturers hoarded a large amount of inventory.
Eurozone: In the Eurozone, the final PMI of manufacturing industry in May was 47.7, indicating that the manufacturing industry is still shrinking. The final PMI of German manufacturing industry is 44.3, which is close to the lowest level since 2012, and the decline rate of output and new orders has slowed down. The final PMI of French manufacturing industry is 50.6. It is worth noting that the output of the euro zone has declined for the fourth consecutive month, and the number of new orders has further dropped sharply, which shows that the manufacturing industry is still in the most difficult period since 2013.
Asia-Pacific: The same is true for Asia-Pacific economies. With the development of automobile industry and semiconductor industry slowing down, South Korea’s purchasing managers’ index has shown signs of contraction. Japan’s manufacturing PMI fell to 49.6 in May, and output and new orders fell for five consecutive months. Singapore was also affected. According to data released by the Singapore Institute of Purchasing and Logistics Management (SIPMM) on the evening of the 3rd, Singapore’s manufacturing PMI fell by 0.4 month-on-month to 49.9 in May. This is the first time that Singapore’s manufacturing PMI has shrunk after 32 months of continuous expansion. It should be noted that manufacturing contributes about one-fifth of Singapore’s GDP.
The World Bank lowered its global economic forecast for 2019 and kept its forecast for the United States and China unchanged.
On June 4th, the World Bank lowered its global economic growth forecast for 2019 on the grounds that the growth rate of trade slowed down to the lowest level since the financial crisis ten years ago, and global investment declined.
The World Bank released its semi-annual world economic outlook report on the 4th, saying that the global economy is expected to grow by 2.6% this year, with a forecast of 2.9% in January and 3% last year. It is estimated that the global economic growth rate will rebound to 2.7% next year.
"Business confidence has fallen sharply, global trade has slowed down, investment in emerging and developing economies has been sluggish, and the driving force is still fragile." World Bank President David? Malpas said in a telephone conference with reporters.
The World Bank also warned that risks are "firmly" inclined to the downside, on the grounds that Sino-US trade tensions have intensified again, financial turmoil in emerging markets, and the weakness of developed countries, especially Europe, has exceeded expectations. The report writes that "a high degree of policy uncertainty, including the recent escalation of trade tensions between major economies, has been accompanied by a slowdown in global investment and a decline in confidence".
Tariff threat
The World Bank also joined the International Monetary Fund (IMF) for fear of US President Donald? Trump’s trade actions are not conducive to the global economy and lower the forecast. Trump recently announced that if Mexico does not organize illegal immigrants to flock to the US border, it plans to impose tariffs on all goods exported to the United States from next week.
The World Bank report lowered the global trade growth forecast by one percentage point, and it is expected to increase by 2.6% this year. The World Bank lowered the forecast of the economic growth rate of the euro zone to 1.2% in 2019 and 1.4% in 2020, which were 0.4 and 0.1 percentage points lower than the January forecast respectively. The bank stressed that weak exports and investment were the factors that caused weak growth in the region.
The World Bank maintains its forecast for the economic growth of the United States and China in 2019. The bank said that as the effect of fiscal stimulus measures gradually fades, the US economy is expected to slow down to 2.5% in 2019 and further slow down to 1.7% and 1.6% in 2020 and 2021. It is estimated that China’s economy will grow by 6.2% this year and slow down to 6.1% next year, down 0.1 percentage point from the previous forecast.
[Comment] The latest report of the World Bank reveals the global impact brought about by trade cracks and shrinking global business confidence. According to the report, there are many reasons for the downward adjustment of growth expectations, including financial market pressure, sub-optimal business environment in many countries, and the slowdown of growth in individual economies due to cyclical factors. However, the report believes that the biggest change momentum is the continued tension in the trade situation. The argument of the World Bank can be verified in the recent shrinking global manufacturing PMI. In the first week of June, the manufacturing indexes of several major economies in the world in the previous month were released one after another. Judging from the data, the second wave of decline has begun to spread.
IMF warns of trade disputes and lowers economic growth expectations of China and the United States.
On June 5th, the International Monetary Fund (IMF) said in its report after the consultation on Article IV in 2019 that trade tension is the main reason for China’s economic uncertainty, and the stimulus measures introduced by the government can only partially offset the impact of US tariffs.
The IMF predicts that China’s economic growth will slow to 6.2% in 2019, 6.0% in 2020 and 5.5% in 2024. The IMF had previously predicted an increase of 6.3% in 2019 and 6.1% in 2020.
The IMF said that the current stimulus measures should be enough to make the economy grow steadily in 2019-2020; If there are no new tariffs or no further slowdown, no more easing policies are needed. China and international partners should make efforts to solve the shortcomings in the trading system and increase the flexibility of foreign exchange; China’s structural reform has made the economy more open, but China will benefit more if it strengthens reform and opening up in strengthening competition; Due to rising food prices, the inflation rate is expected to accelerate to 2.3% in 2019.
Subsequently, the IMF warned on June 6 that the escalation of trade disputes and the sudden reversal of the financial market environment would pose substantial risks to the US economy. As the effect of tax reduction and stimulus policy gradually fades, IMF predicts that the US economic growth will slow down from 2.9% in 2018 to 2.6% in 2019, and further slow down to around 2% in 2020.
America
United States of America
The final value of manufacturing PMI in the United States hit a new low in nearly 10 years in May.
On June 3rd, IHS Markit released the latest data, showing that the final PMI of Markit manufacturing in the United States in May hit a new low since September 2009, the final value of output sub-index hit a new low since June 2016, and the final value of new order sub-index fell into a shrinking range for the first time since August 2009.
Specifically, the data shows that the final PMI of Markit manufacturing in the United States recorded 50.5 in May, which was the lowest since September 2009, less than the initial value and the expected 50.6, and also significantly lower than the previous value of 52.6.
Other data released together show that the PMI output sub-index of Markit manufacturing in the United States in May was 50.7, the lowest since June 2016, lower than the initial value of 50.8 and the previous value of 52.7; The new order index is 49.6, which is the first time since August 2009 that it has fallen into a shrinking range, lower than the initial value of 49.7 and the previous value of 53.5.
In May, the US manufacturing industry experienced the most difficult month in 10 years, and the overall PMI fell to the lowest level since the worst period of the global financial crisis. New orders have dropped at a rate never seen since 2009, leading to more and more companies cutting production and layoffs.
After the release of US manufacturing data, the three major stock indexes of US stocks plunged, the Nasdaq index fell by 0.6%, and the S&P and Dow fell one after another.
[Comment] American manufacturers have experienced the most difficult month in the past 10 years, and the overall PMI has fallen to the lowest level since the peak of the global financial crisis; New orders have dropped at a rate never seen since 2009, leading to more and more companies cutting production and layoffs. The slowdown in manufacturing activities in the United States indicates that the economic and trade frictions provoked by the United States against China are dragging down the American economy.
The Fed hinted that it would cut interest rates and take appropriate measures to maintain economic expansion.
On June 4th, the Federal Reserve held a two-day series of meetings in Chicago. In his speech, Federal Reserve Chairman Powell said that the Federal Reserve will take appropriate measures to maintain sustained economic expansion.
Powell said that the Fed is paying close attention to the impact of trade negotiations on the US economic prospects. Powell said that with the economic growth, low unemployment rate and low and stable inflation in the United States, it is time to reconsider the long-term strategy. The Fed will take seriously the risk of downward inflation expectations. Fed policymakers are open to the review of the policy framework, and the strategy to deal with inflation needs public support.
Powell stressed that it is expected that during the economic downturn, it is much more likely that interest rates will fall to the lower limit of the effective range. Monetary policy tools during the crisis have played a role and are likely to be needed again. The Fed takes seriously the risk that persistent insufficient inflation may reduce inflation expectations. The median interest rate forecast of the Federal Reserve is best regarded as the "least likely" result.
Since the Fed released a wait-and-see signal on the interest rate issue at the interest rate meeting in May, the call for the Fed to cut interest rates has been getting louder and louder. The importance of this Chicago meeting lies in clarifying the attitude of the Fed at the crossroads of policy choice.
On June 7, according to CME’s "Fed Watch", the probability that the Fed will keep the interest rate at 2.25%-2.5% in June this year is 77.5%, and the probability of cutting interest rates by 25 basis points is 22.5%. The probability of maintaining interest rates in this range in September is 8.6%, and the probability of cutting interest rates by 25 basis points and 50 basis points is 37.6% and 44.0% respectively.
[Comment] Some recent economic data in the United States are unsatisfactory. The recently released retail sales, consumption data and personal consumption expenditure data are lower than market expectations, and there is still a certain distance from the 2% inflation target set by the Federal Reserve. In addition, superimposed on the sudden change of the international situation, the voice of controversy about whether the Fed should cut interest rates is getting higher and higher.
The core issue of this series of meetings in Chicago is to measure whether the Fed policy needs to be changed. The original design was to strengthen the credibility of the "symmetric 2% inflation target". At present, the economic growth, low unemployment rate and low inflation in the United States are stable, so it is time to reconsider the long-term strategy.
The US trade deficit unexpectedly narrowed in April, and merchandise imports hit a 15-month low.
On June 6, the United States released data. In April, the trade deficit fell by 2.1% month-on-month to US$ 50.8 billion, and the deficit in March was revised to US$ 51.9 billion. US merchandise imports hit a 15-month low in April. As a result, the US trade deficit unexpectedly narrowed in April, offsetting the impact of the decline in aircraft exports. Among them, the trade deficit with China increased by 29.7% to $26.9 billion in April.
In April, US merchandise exports fell by 3.1% to US$ 136.9 billion, the largest decline since January 2015, of which aircraft exports decreased by US$ 2.3 billion, and soybean exports further declined in April. After inflation adjustment, the US merchandise trade deficit fell from $83 billion in March to $81.9 billion.
According to data from the Ministry of Commerce, the trade deficit of goods and services in the United States has shrunk to $50.8 billion, which is basically in line with market expectations. The trade deficit between China and Mexico increased to $29.4 billion, while Mexico’s trade deficit narrowed to $7.9 billion.
The decline in exports was the biggest in three years, partly due to the decline in demand for civil aircraft after Boeing’s 737 Max model was grounded around the world.
In April, the export of goods to China dropped from $10.2 billion last month to $8.5 billion, down by 20% year-on-year, while the import from China dropped by 13.2% in 2019.
At the same time, merchandise exports to Mexico have hardly changed, while imports have increased by 6.1%.
Federal Reserve Report: US commercial debt increased by 6.6% in the first quarter of 2019.
On June 7, the Federal Reserve reported that US commercial debt increased by 6.6% in the first quarter of 2019; The growth rate of US household debt slowed down to 2.3% in the first quarter of 2019; The growth rate of household savings rate in the United States in 2019 increased to 6.7% in the first quarter.
US non-agricultural data was weak in May, and US debt prices soared.
According to the data released by the US Department of Labor on June 7, the number of non-agricultural employees increased by 75,000 in May, the lowest level in three months, less than half of the expected 180,000. This is bad enough. There is a more worrying feature in studying this non-farm payrolls report.
According to the report, the diffusion index, which measures the proportion of industry recruitment, fell to a two-year low of 54.8%, and only half of the companies in the United States are recruiting. This means that the employment slowdown is not only concentrated in one area, which is also obvious in the industry classification of the report.
Manufacturing employment has been weak for the second month in a row. Considering the tension caused by US trade policy, strong dollar and slowing world economic growth, this is not surprising, but this weakness has further spread. Employment growth in the construction industry dropped from 30,000 to 4,000. Temporary services were almost halved, from 9,900 to 5,100.
After the release of non-agricultural data, the yield of US 10-year benchmark government bonds fell by 3.65 basis points to 2.0809%, and once plunged to a daily low of 2.0534%, the lowest since September 8, 2017; Compared with last Friday’s late trading in new york, it fell by 4.37 basis points, the fifth consecutive week of decline. The yield of two-year US bonds fell by 2.93 basis points to 1.8494%, and once plunged in intraday trading, it hit a daily low of 1.7727%. Compared with last Friday’s late trading in new york, it fell by about 7.27 basis points, which was the fifth consecutive week of decline.
[Comment] Non-agricultural data suggest that US economic growth is losing momentum. Since this employment report does not reflect the news that Trump announced on May 30 that he would consider imposing tariffs on Mexico, the US economic outlook may be even more pessimistic. The economic level is still affected by the persistent global economic uncertainty risk, and the slowing manufacturing activities have a certain impact on the labor market. If the labor market and other indicators further release weak signals, the Fed will have to consider cutting interest rates to boost economic expansion.
Mexico
The United States and Mexico reached an agreement, and the tariff increase plan was suspended indefinitely.
On June 7, US President Trump announced that a trade agreement has been reached with Mexico, and the measures originally scheduled to impose tariffs on it on Monday will be "indefinitely suspended".
Mexican Foreign Minister Ebrard confirmed after Trump announced the provisional tariff measures that the United States would not impose tariffs on Mexico.
He said that Mexico plans to give priority to deploying the National Guard in the southern border area next Monday to improve the immigration problem, and will increase the applicable laws to reduce the number of immigrants, allowing immigrants waiting to complete the US asylum procedures to be sent to Mexico; The United States and Mexico will take the lead in building a prosperous and secure Central America and agree to take necessary additional measures. In addition, after the United States and Mexico reach a new agreement, the adoption process of the US-Mexico Canada Agreement (USMCA) will be accelerated.
The Mexican ambassador to the United States said that under the new agreement reached between the United States and Mexico, Mexico will strengthen the implementation of the immigration law; And will provide employment opportunities for those who are waiting for the end of the US asylum procedure in Mexico; At the same time, it will strengthen cooperation between southern Mexico and central America.
According to the analysis of the new york Times, Mexico, as the largest trading partner of the United States, if the trade war between the two sides really breaks out, it will cause huge losses to the United States, including increasing the American consumption cost, which will lead to an increase in the unemployment rate in the United States, destroy the supply chain system of many industries in the United States, and may eventually lead to economic recession in North America as a whole.
Affected by the possibility that the United States may postpone the imposition of tariffs on Mexico and Canada, coupled with the market’s expectation of the Fed’s interest rate cut, the three major US stock indexes collectively rose on the 7 th, rising for the third consecutive day.
Chile
Chile’s central bank unexpectedly cut interest rates by 50 basis points to 2.5%, the biggest drop in a decade, which shocked the market.
On June 8, Chile’s central bank announced that it would cut its benchmark interest rate by 50 basis points from 3% to 2.5% due to the weak economic growth and inflation, which was the biggest rate cut in 10 years. The market originally expected the central bank to keep the interest rate unchanged.
At the same time, the central bank also lowered its economic growth forecast for 2019, from the previous 3 to 4% to 2.75 to 3.5%.
According to the analysis, although a large number of immigrants from Venezuela raised Chile’s potential growth expectations, the economic growth in the first four months was weak. Chile is the world’s largest copper producer, and the global trade tension has undermined global economic growth and weakened Chile’s copper export price.
The last time the Chilean central bank adjusted the interest rate was January 30, 2019, when it raised the interest rate by 25 basis points from 2.75% to 3%.
[Comment] Affected by global trade tensions, Chile’s economy has not recovered enough to narrow the output gap and boost inflation. It is expected that Chile’s central bank will still adjust its monetary stimulus measures.
Australia, India and Chile cut interest rates one after another this week. Prior to May, five countries in the world cut interest rates successively, namely Malaysia, New Zealand, the Philippines, Iceland and Sri Lanka. This week, the Australian central bank cut interest rates this time, which was also interpreted by the outside world as opening the era of global interest rate cuts.
Europe
In May, the initial CPI in the euro zone increased by 1.2% year-on-year, and the final GDP in the first quarter was 0.4% quarter-on-quarter.
On June 4th, Eurostat announced the initial value of CPI in the euro zone in May in Luxembourg today.
The forecast range is 1% to 1.7%, as expected by 45 economists; The initial value of CPI in the euro zone increased by 1.2% in May and 1.7% in April. The core CPI excluding energy, food, tobacco and alcohol in the euro zone in May rose by 0.8% year-on-year; In April, it increased by 1.3% year-on-year, and it is estimated to increase by 0.9% year-on-year. The core inflation rate dropped to 0.8%.
On June 6, Eurostat released data showing that the final value of GDP in the first quarter of the euro zone increased by 1.2% year-on-year, expected to increase by 1.2%, and the initial value increased by 1.2%; The chain increased by 0.4%, expected to increase by 0.4%, and the initial value increased by 0.4%. The German economy rebounded from zero growth in the previous quarter to 0.4% in the first quarter; Italy has also recovered from two consecutive quarters of technical recession, and its economy grew by 0.2% in the first quarter.
[Comment] Inflation in the euro zone slowed down more than expected in May, further intensifying the pressure on ECB policy makers. The euro zone achieved gratifying results in the first quarter, thanks to the rebound of Germany, the largest economy, and the end of the technical recession in Italy.
The European Central Bank revised its forward-looking guidance again, maintained interest rates at least until the first half of 2020, and announced key details of TLTRO.
On June 6, the European Central Bank announced the resolution of the June policy meeting, maintaining the three key interest rates unchanged, and it is expected that the current interest rate level will be maintained at least until the first half of 2020, and the details of TLTRO interest rate setting are given. The main interest rate of the third round of directional long-term refinancing operation (TLTRO) is 0.1%, and the interest rate of TLTRO can be as low as 10 basis points higher than that of the deposit mechanism.
European Central Bank President Mario Draghi said that moderate monetary easing is necessary; It is still far from policy normalization, and some members put forward the possibility of cutting interest rates or restarting QE; The European Central Bank can cut interest rates when necessary, and if it does, it is possible to use the interest rate grading system; Has begun to consider fiscal policy. Draghi also pointed out that weak economic growth reflects the slowdown in trade, and the latest data shows that the global economic headwinds still put pressure on the prospects of the euro zone; But the risk of falling into recession is very low.
In his speech, Draghi gave the latest economic expectations, raised the economic growth forecast this year and lowered the growth forecast for the next two years. It is estimated that the economic growth rate will be 1.2% in 2019, which was previously expected to be 1.1%; In 2020, the economic growth rate will be lowered to 1.4%, compared with 1.6% before; In 2021, the economic growth rate was lowered to 1.4%, compared with 1.5% before.
In terms of inflation, core inflation will rise in the medium term. The latest forecast shows that this year’s inflation forecast will be raised, but next year’s inflation forecast will be lowered. The inflation rate in 2019 is expected to be 1.3%, which was previously expected to be 1.2%; Inflation will be lowered to 1.4% in 2020, compared with 1.5% previously expected; Inflation will remain unchanged at 1.6% in 2021.
[Comment] This is the second time that the European Central Bank has revised its forward-looking interest rate guidance in the last six months. On March 7 this year, the European Central Bank stated that it expects to keep interest rates unchanged at least until the end of 2019. In fact, since April 2016, the European Central Bank has kept the three major interest rates unchanged, namely, the main refinancing rate of the European Central Bank is 0%; The marginal lending rate of the European Central Bank is 0.25%; European Central Bank deposit convenience rate -0.4%.
Germany
Germany’s exports fell by 3.7% in April after the seasonal adjustment, and the central bank lowered its economic growth rate to 0.6% in 2019.
On June 7, data released by Germany showed that the seasonally adjusted export in April was -3.7% month-on-month, expected to be -0.9%, and the previous value was 1.5%; Germany’s seasonally adjusted imports in April were -1.3% month-on-month, expected to be -0.2%, and the previous value was 0.4%.
On the same day, the Bundesbank lowered its economic growth forecast for 2019 from 1.6% to 0.6%; The forecast of economic growth in 2020 will be lowered from 1.6% to 1.2%. Maintain inflation expectations at 1.4% in 2019; Lower the inflation forecast for 2020 from 1.8% to 1.5%.
France
On June 7, data released by France showed that French industrial output in April was 0.4% month-on-month, expected to be 0.3%, and the previous value was -0.9%.
Britain
Britain’s manufacturing PMI fell to 49.4 in May, hitting a 34-month low.
On June 3rd, the data jointly released by British information provider HIS Markit and British Purchasing and Supply Chartered Association showed that the purchasing managers’ index (PMI) of British manufacturing industry fell to 49.4 in May, hitting a 34-month low.
The seasonally adjusted data shows that the PMI of British manufacturing industry fell to 49.4 in May, much lower than 53.1 in April, and fell below threshold for the first time since July 2016, entering the contraction range.
At the same time, due to the uncertainty of Brexit, export orders in May fell at the fastest rate in four and a half years.
According to Markit analysis, an important reason for the decline of manufacturing industry is that due to the uncertainty of Brexit, the high manufacturing effect driven by inventory in early 2019 is fading, and the British manufacturing industry is entering a downturn.
Duncan, director of the British Purchasing and Supply Chartered Association? Brock said that the association’s supply chain manager was deeply worried about the continued impact of Brexit. As some supply chains left the UK, the total number of new orders dropped for the first time since last October. Britain’s manufacturing industry will likely continue to be in the contraction range.
[Comment] The inflow of new orders from domestic and overseas markets has declined, because the already high inventory level of manufacturers and their customers makes it difficult for them to maintain the output level and reach an agreement on new contracts. Demand has also been affected by the persistent global trade tensions, and enterprises have begun to remove the stocks accumulated before the scheduled date of Brexit.
Teresa? Mei formally resigned as the leader of the ruling party and remained as prime minister.
British Prime Minister Teresa? May officially resigned as the leader of the ruling Conservative Party on June 7, but she will remain as prime minister until a new prime minister is elected. The election procedure for the new leader of the Conservative Party will be officially launched on the 10th. The new leader will be elected through several rounds of intra-party elections, and the winner is expected to be elected at the end of July.
Italy
The EU initiated the disciplinary procedure against Italy to warn of the snowball effect of debt.
On June 5th, the European Commission took the first step towards punishing Italy for failing to control its debt, paving the way for imposing an initial fine of 3.5 billion euros (4 billion US dollars) on the country.
In a published report, the European Commission said that Italy has not made enough progress in reducing its debts in accordance with EU financial regulations, so it is "necessary" to start disciplinary procedures. This marks a further escalation of the dispute over the Italian budget. The Italian budget crisis hit the market hard at the end of 2018, and the EU’s move was also a warning to Italian populist leaders who vowed to revise the EU budget regulations, especially the Deputy Prime Minister Matteo Salvini.
The European Commission said in its report that "public debt is still a root cause of Italy’s economic fragility." The proportion of the country’s debt to GDP will "continue to rise in 2019 and 2020, and the highest will exceed 135%, which is affected by the snowball effect of increasing debt, the declining basic surplus and the ineffective privatization process." The report pointed out that "although the risk of refinancing is still limited in the short term, the huge public debt is still the source of the fragility of the Italian economy."
The European Commission’s move is only one step in a set of complicated procedures, which need to be weighed by EU governments many times. Although the fine is relatively small, the official condemnation from the European Union may bring further trouble to Italy. The country has been hit by the financial market and is deeply troubled by the tension between the Five Star Movement and the League.
EU finance ministers must also make a statement on whether they agree with the commission’s proposal, possibly at their next meeting in early July. By then, the Committee has 20 days to decide whether it should ask Italy for an "interest-free deposit" equivalent to 0.2% of its GDP (about 3.5 billion euros). If Italy does not comply with the EU’s proposal on debt reduction, it may face higher fines.
Although the EU has initiated such procedures for other countries, it has never done so because a country’s debt is too high. It has never really imposed a fine on a country, but has chosen to impose other sanctions on countries that violate financial regulations. Even if Italy finally escapes economic punishment, the disciplinary procedure will affect its participation in EU affairs, and may reduce the Italian government’s ability to compete for the position of the European Central Bank and negotiate political issues in Brussels.
Bank of Italy: cut inflation expectations to 0.8% in 2019.
On June 7, the Bank of Italy predicted that GDP would rise by 0.3% this year and 0.7% next year. Reduce the inflation forecast to 0.8% in 2019. It is estimated that inflation will be 1% in 2020 and 1.5% in 2021.
Switzerland
Swiss regulators fined a number of banks a total of $91 million for collusion in foreign exchange transactions.
On June 6th, some global banks, including Citigroup and Barclays, were fined 90 million Swiss francs (US$ 91 million) by Swiss competition regulators because of their collusion in foreign exchange transactions.
According to the announcement, Barclays was fined 27 million Swiss francs by the Swiss Competition Commission, Citigroup was fined 28.5 million Swiss francs and JPMorgan Chase was fined 9.5 million Swiss francs. UBS Group AG was exempted for exposing the existence of foreign exchange cartels.
Before the Swiss punishment, regulators on both sides of the ocean had been investigating how traders used chat rooms to manipulate the exchange rates of major currencies for many years.
Last month, five banks agreed that the European Union would pay a fine of 1.07 billion euros for collusion in foreign exchange transactions.
According to the Competition Commission, traders from Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland (RBS) and UBS Group AG colluded with traders from Barclays, Mitsubishi UFJ Bank, RBS and UBS Group AG through a cartel called "Three-way banana split" within six years, and through the so-called "Essex Express" chat room from 2009 to 2010.
According to the announcement on the 6th, RBS was fined 22.5 million Swiss francs and Mitsubishi UFJ Bank was fined 1.5 million Swiss francs. The Swiss regulator said that it is aimed at Credit Suisse Group? The investigation of color is still going on; The investigation of Swiss Baosheng Bank and Zürcher Kantonalbank has ended, but it has not been said whether they will be punished.
Greece
The EU warned that Greece may not reach its post-bailout budget target in 2019.
On June 5th, the European Commission said in its third post-rescue report for Greece that the fiscal cost caused by the package of additional permanent fiscal measures adopted by the Greek authorities on May 15th will exceed 1% of GDP in 2019 and beyond.
These policies pose risks to the achievement of the agreed basic budget surplus of 3.5% of GDP in 2019 and beyond.
The measures on pension and sales tax are aimed at consumption, which will absorb the fiscal space to promote growth and reduce the tax rates of labor tax and corporate tax.
If the basic budget surplus target agreed in June 2018 is changed, it needs to be discussed at the Euro Group meeting based on the latest debt sustainability analysis.
Oceania
Australia
The unemployment rate in the property market continued to be low, and the Australian central bank cut interest rates again after three years, cutting interest rates by 25 basis points to 1.25%.
On June 4th, the Reserve Bank of Australia announced a rate cut of 25 basis points to 1.25%, the lowest level in history, in line with market expectations. This interest rate cut is also the first time that the Reserve Bank of Australia has cut interest rates since August 2016.
According to reports, the unemployment rate and inflation are two key indicators that lead the Australian central bank to adjust its monetary policy. In addition, the continued downturn in the property market in Sydney and Melbourne is also one of the reasons for the central bank to cut interest rates.
The data shows that in the past year, house prices in parts of Sydney and Melbourne have fallen by 14%. After the Australian central bank cuts interest rates, commercial banks will decide the interest rate changes of their mortgages on their own. If commercial banks completely follow the downward adjustment of mortgage interest rates, then it will be possible to attract buyers back to the property market. After the interest rate cut, it will support the recent decline in Australian housing prices, but we should still pay attention to how much interest rate cut will be passed on by Australian banks to consumers who borrow money to buy houses.
Philip Lowe, Governor of the Reserve Bank of Australia, issued a statement after the RBA’s regular monetary policy meeting in June, saying that the decision to lower the cash interest rate will help reduce unemployment and make more sure progress in achieving the inflation target.
According to Lowe’s statement, the Reserve Bank of Australia’s forecast for Australia’s economic growth prospects in 2019 and 2020 remains at 2.75%. This judgment is mainly based on the increase in infrastructure investment and the active resources field, especially the support of the rising prices of export products to the economy. At the same time, however, uncertainties still exist. Due to the slow growth of household income and the decline in house prices, household consumption in Australia is sluggish.
In terms of employment and inflation, despite the strong employment growth and rising labor force participation rate in the past year, the surplus capacity of the labor market has hardly developed further recently. Over the past few months, the unemployment rate has stabilized at around 5%, and it rose to 5.2% in April. At the same time, the overall wage growth is still very low. The recent inflation results are lower than expected, and the Australian central bank’s forecast for potential inflation this year is still 1.75% and 2% in 2020.
Lowe said that the Australian central bank will pay close attention to the development of the labor market and adjust its monetary policy to support sustainable economic growth and achieve long-term inflation targets.
Since the Reserve Bank of Australia lowered the cash benchmark interest rate to 1.5% in August 2016, it is the first time that the Reserve Bank of Australia has taken action in the field of monetary policy in the past three years. Due to the weak economy, it has been maintained for a long time, and this interest rate cut is in full line with expectations.
The Australian central bank’s interest rate cut this time has also been interpreted by the outside world as opening the era of global interest rate cuts.
[Comment] Following New Zealand, Australia has also taken the expected policy steps. Australia’s economy has not experienced recession for 27 consecutive years (the GDP growth rate has decreased for two consecutive quarters), which is unique among developed countries. The strong job market, abundant immigrant labor force and high demand for commodities such as iron ore have supported the country’s economy. However, in the past year, Australia’s economic expansion has begun to falter, which has also increased the expectation of loose monetary policy. For several years, Australia’s inflation level has always been below the target of 2%-3%. The Reserve Bank of Australia seeks faster economic growth to push up inflation and further reduce the unemployment rate.
In addition to the sluggish inflation, the huge challenge of the economic outlook is also an important consideration. Affected by many factors, such as trade friction, the deterioration of geopolitical situation and the slowdown of global economic growth, the yields of public bonds in various countries have continued to fall. Similar to U.S. debt, the yield curve of Australian government bonds is upside down. The yield of 10-year Australian government bonds hit 1.487% last week, which was not only lower than the benchmark interest rate of 1.5% which was already at a historical low, but also widened to 75BP (basis point), a 40-year high. The Australian dollar fell to a 10-year low, and the Australian dollar/US dollar has fallen by nearly 25% in the past five years. Although the weak Australian dollar is beneficial to the tourism and education industries, it also brings a lot of benefits to the export industry, but many local enterprises feel the pressure of survival. At present, it is widely expected that the Reserve Bank of Australia will cut interest rates twice to 0.75% before February next year.
Australia’s GDP in the first quarter increased by 0.4% month-on-month, and it is estimated to increase by 0.5%.
On June 5th, the Australian Bureau of Statistics released data in Sydney.
In the first quarter, GDP increased by 1.8% year-on-year and 0.4% quarter-on-quarter. The household savings rate in the first quarter was 2.8%; Household expenditure increased by 0.3% in the first quarter.
Asia
Japan
G20 trade ministers meeting held in Tsukuba, Japan.
On June 8-9, the G20 Trade Ministers’ Meeting was held in Tsukuba, Japan, during which a joint meeting was held with the Digital Economy Ministers’ Meeting held in the same period. The meeting was co-chaired by Japanese Minister of Economy, Trade and Industry Shigeng Hiroshi and Foreign Minister Tarō Kōno. G20 members and trade ministers or representatives of Singapore, Vietnam, Spain, Netherlands, Chile, Egypt, Nigeria and Senegal, WTO Director-General Azevedo and representatives of international organizations such as UNCTAD, World Bank, International Monetary Fund and OECD attended the meeting. Wang Shouwen, Vice Minister of Commerce and Deputy Representative of International Trade Negotiations, attended the meeting on behalf of Minister Zhongshan, and Zhang Xiangchen, Ambassador of the Permanent Mission of China to the WTO, attended the meeting.
The meeting focused on global trade development, optimizing business environment, trade and investment and sustainable and inclusive growth, WTO reform, trade and digital economy, and issued a joint statement after the meeting, which made economic and trade preparations for the G20 leaders’ Osaka Summit at the end of June. All parties attending the meeting unanimously recognized the positive contribution of the WTO to international trade, and indicated that they would jointly optimize the business environment, actively build a free, open, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, maintain market opening, and constructively carry out the necessary reforms of the WTO.
At the same time, all parties will strengthen the linkage between trade and digital economy, actively carry out e-commerce capacity building and pragmatic cooperation, and give full play to the positive role of trade and investment in economic growth, employment increase, development and innovation in the digital age. The meeting also released a compilation of G20 policy cases and business practices, aiming at promoting inclusive and sustainable growth.
In view of the rapid development and wide application of artificial intelligence technology in the world, this meeting discussed the issue of artificial intelligence for the first time. Considering employment and other factors, the meeting held that the development of artificial intelligence should be human-centered and take responsible development as the goal principle.
Due to the opposition of the United States, the meeting failed to include "opposition to trade protectionism" in the ministerial statement, but only expressed concern about trade frictions in the presidential statement prepared by Japan.
South Korea
South Korea’s GDP in the first quarter fell by 0.4% month-on-month, compared with the previous estimate of 0.3%.
On June 3, the Bank of Korea announced the revised GDP in the first quarter in a statement.
South Korea’s GDP in the first quarter increased by 1.7% year-on-year; The previous estimate was an increase of 1.8%. Exports decreased by 3.2% from the previous month; Facility investment decreased by 9.1% month-on-month; Government expenditure increased by 0.4% from the previous month; Construction investment decreased by 0.8% from the previous month; Private expenditure increased by 0.1% month-on-month.
[Comment] The continuous downward trend of the world economy and the simultaneous reduction of domestic investment and consumption in South Korea have jointly increased the danger of the downward trend of the Korean economy; The slowdown in global semiconductor demand and the uncertainty caused by Sino-US economic and trade frictions have impacted the Korean high-tech industry.
South Korea recorded a current account deficit in April, ending its seven-year surplus.
On June 4th, an indicator supporting South Korea’s strong credit rating and financial market stability showed a deficit for the first time since April 2012, and the economy, which was already hit by global growth slowdown and export decline, was further in trouble.
According to the data released by the Bank of Korea, the current account balance, the broadest indicator for measuring trade in goods and services in Korea, recorded a deficit of 665 million US dollars in April due to the narrowing of the trade surplus caused by the decline in exports and the strong dividend distribution to foreign investors.
Long-term surplus is the key factor for South Korea to maintain a stable sovereign rating. The rating company gives South Korea a sovereign rating of Aa2, which is on a par with Britain and France and superior to Japan. The current account surplus has also eased the impact of capital outflows that often occur in other emerging markets on the Korean financial market.
The question is whether the deficit is only temporary. The South Korean government pointed out that the deficit in April was affected by the "seasonal factor" of centralized dividend distribution, and it is expected that the current account balance will rebound soon. However, unless exports can rebound quickly, South Korea’s days of running a monthly surplus of $10 billion may not return soon, which is unlikely given the escalating trade war between the United States and China.
India
The United States will terminate its preferential trade treatment with India.
US President Trump announced that the United States will terminate its preferential trade treatment for India from June 5. India, with its slow growth and record high unemployment rate, will suffer another economic blow.
According to the data of the US Congress, India has been the biggest beneficiary of the GSP system implemented by the United States for decades, which enabled India to export US$ 5.7 billion (US$ 1 is equivalent to 6.9 yuan RMB) of zero-tariff goods to the United States in 2017.
In a statement issued on May 31, Trump said that he hoped more American goods would enter the Indian market. He said: "I don’t think India has promised the United States that it will open its market fairly and reasonably." He said: "Therefore, it is appropriate to terminate the treatment of India benefiting from developing countries." According to reports, Trump announced in March that he would end the preferential trade agreement with India, but did not mention the date at that time. The US trade deficit with India in fiscal year 2017-2018 reached $26.7 billion.
On June 1st, India’s Ministry of Commerce and Industry made a relatively mild response to the US government’s decision: "As part of bilateral trade discussions, India has put forward solutions to the major requirements put forward by the United States in order to find a way forward acceptable to both sides. Regrettably, the United States did not accept it. " But the Ministry said that India will continue to deepen its relations with Washington. Randip, spokesman of the Congress Party? Singh? Surgy Valla pointed out that the termination of preferential trade treatment by the United States is a double blow to India. India has bowed to American pressure to stop buying oil from Iran, and now India’s special trade status in the United States is about to disappear.
Indian officials have previously suggested that if Trump lets India withdraw from the plan, it may impose higher import duties on more than 20 American goods. However, the statement issued by the Indian government through the Indian Ministry of Commerce and Industry also stressed: "India will, as always, safeguard its national interests on these issues, just like the United States and other countries."
[Comment] Stopping the GSP treatment for India will not only be the most severe punishment for India since Trump took office, but also open up a "new front" in the global trade war.
The Bank of India cut interest rates by 25 basis points to 5.75%, the third time this year, and the adjusted interest rate hit a nine-year low.
On June 6th, the Bank of India announced that it would cut interest rates by 25 basis points to 5.75%, which was the third time this year. The Bank of India adjusted its "loose" monetary stance to "neutral". Six members of the Monetary Policy Committee unanimously voted to cut interest rates by 25 basis points, and changed their position to "loose" and kept the deposit reserve ratio unchanged at 4%.
This is also the third time that the Bank of India cut interest rates during the year after February and April, and the adjusted interest rate level hit a nine-year low. After the announcement of the decision to cut interest rates, Indian Rupee fell slightly, the stock market unexpectedly plunged, and the yield of government bonds fell.
The Bank of India lowered its GDP forecast for 2019/2020 from 7.2% to 7.0%. It is estimated that the overall inflation will be 3.0-3.1% in the first half of 2019/2020 and 3.4-3.7% in the second half.
According to the data released by the Central Bureau of Statistics of India, India’s GDP growth rate in the first quarter of this year dropped to 5.8%, the lowest since the third quarter of 2015, which was significantly slower than the growth rate of 8.1% in the same period last year. At the same time, in fiscal year 2018-2019 (from April 2018 to March 2019), India’s economy grew by 6.8%, which was lower than that in fiscal year 2017-2018.
The data shows that due to the poor performance of agriculture and manufacturing, India’s economic growth rate dropped to 5.8% in the first quarter of 2019, lower than 6.6% in the previous quarter, reaching the lowest level in the past five years.
In terms of inflation, the Bank of India said that even taking into account the transmission factors of interest rate cuts in the past, the overall inflation trajectory is still below the target.
The Bank of India said that the minimum leverage ratio of domestic systemically important banks should be 4%, while that of other banks should be 3.5%. Even taking into account the transmission factors of interest rate cuts in the past, the overall inflation trajectory is still below the target.
Citigroup: The Bank of India is expected to cut interest rates again in August.
[Comment] India’s growth momentum has obviously weakened, which is reflected in the further expansion of the output gap. The sharp slowdown in investment activities and private consumption has caused concern.
Australia, India and Chile cut interest rates one after another this week. Prior to May, five countries in the world cut interest rates successively, namely Malaysia, New Zealand, the Philippines, Iceland and Sri Lanka. This week, the Australian central bank cut interest rates this time, which was also interpreted by the outside world as opening the era of global interest rate cuts.
Iran
FGE: Iran’s oil exports have decreased by more than 70% under the new US sanctions.
On June 5th, FGE, a consulting company, said that Iran’s crude oil and condensate oil exports plummeted to 350,000-400,000 barrels per day in May, compared with 1.5 million barrels per day in the first quarter.
FGE predicts that exports will remain at 400,000 to 500,000 barrels per day, as some buyers try to circumvent the sanctions after initially complying with them; Saudi Arabia and Iraq are competing for the largest customer, China, to replace the Iranian share; China will continue to import about 260,000 barrels per day.
Africa
South Africa
South Africa’s GDP in the first quarter suffered the worst contraction since 2009.
On June 4th, data showed that South Africa’s economy in the first quarter was the worst since the economic recession in 2009, prompting traders to increase their bets that the central bank would cut interest rates as early as next month, and the rand fell sharply in the day.
The South African Bureau of Statistics announced that the gross domestic product (GDP) shrank at an annual rate of 3.2% in the first three months of this year, the biggest quarterly decline in 10 years, partly due to power outages.
The country’s GDP performance in the first quarter was weaker than expected, mainly due to the contraction of agriculture, mining and manufacturing by 13.2%, 10.8% and 8.8% respectively. The latter two industries were particularly hit by severe power outages, and the power outage in the first quarter had an impact on enterprises and consumers. Increased the risk that the economy may fall into a second recession.
[Comment] The dual impact of weak mining and manufacturing activities is dragging down GDP growth, but the uncertainty of domestic policies and global trade wars may also have an impact. This economic data has increased the pressure on the central bank to lower interest rates.
Second, the dynamics of bulk commodities
OPEC’s oil export revenue increased to the highest level since 2014 last year.
On June 3, OPEC said in its annual report that its oil export revenue increased by 17% to US$ 649 billion in 2018.
[Comment] The increase in revenue shows that OPEC+ is playing a role in managing supply, thus providing economic support to member countries.
Investors flocked to gold, and the largest gold ETF position was the largest increase since 2016.
Affected by the renewed risk aversion, in the past few trading days, the international gold price broke through the two barriers of $1,310 and $1,320 in one fell swoop, and gradually approached the $1,330 mark, rising to the highest level since March this year. While the price of gold is rising, the positions of gold traded open-end funds (ETFs) at home and abroad are also increasing.
According to the data on June 3rd, the position ETF——SPDR Gold, the world’s largest gold ETF, increased by 16.44 tons, the largest increase since July 6th, 2016, which also made the current position rise to 759.65 tons, a two-month high.
[Comment] Global trade tension and weak inflation in the United States, the risk of economic growth in the United States is rising, risk aversion is heating up, and gold prices are expected to be supported.
Crude oil: the prospect of OPEC’s continued production cuts pushed oil prices to stop falling and rebound.
On June 4th, data showed that oil prices rebounded after falling for four consecutive trading days, and the signs of OPEC+ tightening supply exceeded the concern that the escalation of trade tensions from China to Mexico would slow down global demand.
New york crude oil futures closed up 0.4%. Vitol Group, the world’s largest oil trader, predicts that OPEC and its allies will extend the production restriction agreement in the second half of 2019. Saudi Energy Minister Khalid Al-Falih said that he will do everything possible to stabilize the market.
Despite this, West Texas Intermediate and Brent crude oil, the global benchmark, are still hovering near the lowest point in more than four months, and are under pressure from demand concerns.
JPMorgan Chase said Wednesday that the possibility of the US economy falling into recession in the second half of this year has increased from 25% a month ago to 40%.
According to UBS analysts, crude oil is expected to rise to $75 in the next three months due to insufficient supply. Socié té Gé né rale (601166) expects Brent crude oil prices to average $72.50 per barrel in the second half of the year.
[Comment] With the intensification of trade tensions, the global economic situation has deteriorated. However, this macro pessimism masks the real favorable fundamentals of the oil market.
The International Energy Agency (IEA) predicts that by 2024, China will account for more than 40% of the global natural gas demand growth.
On June 7, the International Energy Agency (IEA) predicted that by 2024, the global LNG trade is expected to reach 546 billion cubic meters/year, an increase of 26% over 2018. By 2024, China will account for more than 40% of the global natural gas demand growth.
Source: public information collation.
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