(July 22, 2018) Weekly Topics of Global Economy

[kyonmanchung]

(July 22, 2018) Weekly Topics of Global Economy

안녕하세요? 날씨만 아니라 Global Economy도 점차 찜통 속으로 빠져 들어가는 느낌입니다. 한국경제 잘 해 나가길 기원합니다.

1. Trump Lines Up Fed Chairman as Fall Guy If Tax, Trade Moves Sour

- Trump대통령이 세금감면과 무역분쟁 정책이 실패할 경우, 그 희생양(fall guy)으로 Jerome Powell 연준 의장을 지목하고 있군요.

Trump는 Fed가 금리를 인상함으로써 자신이 추진하는 무역적자 감축 노력을 훼손하고 있다면서 최근 이틀간 연이어 Fed를 공격하였습니다. 이를 두고 한 투자회사 대표는 Trump가 자신의 정책 실패 시 비난 받을 희생양을 찾고 있다고 말하는군요.

Fed는 올해 두차례 기준금리(Federal funds rate)를 인상(각 25bp)하였으며, 연내 2차례 더 인상할 예정으로 있는데, 허참이네요.     

하지만 미국은 Federal Reserve Act에 의거 Monetary Policy 결정이 Fed의 고유 권한에 속하므로 대통령이 관여할 사항이 아님. 이를 염두에 두고 Mnuchin재무장관(G20 재무 장관회의 참석, Buenos Aires)이 ‘대통령은 Fed의 독립성을 전적으로 지지한다’고 슬쩍 변명.  

최근 BOJ, ECB 등은 경제지표가 예상보다 부진하여 금리인상을 늦추고 있음은 사실임. 그러나 Currency exchange rate는 금리(차)의 영향도 크지만 무엇보다 경제상황 전반에 영향을 받는 것임. 그간 미국 경제의 지속 호조가 대체적인 $강세의 요인임.

실제로 Trump가 지난 3월 철강 및 알루미늄에 대해 관세부과를 선언할 당시와 비교해 US$ index는 약 5% 강세를 시현 중인 것도 미국경제가 더 좋았기 때문.. 미국의 2분기 성장률(금요일 발표)이 4% 정도로 높게 나온다면 $화 추가 강세 예상.

<생각> 최근 Trump는 중국 등 세계를 상대로 한 무역분쟁, 국내 불법입국자 처리, 미국 정보당국의 Russia선거개입 주장 등등 여러가지 복잡 곤란한 상황에 처하고 있음 -> Trumpnomics 실패를 전가할 속죄양이 필요하겠지요. 앵이, 정치인들이란!   

2. Currency War Erupts, Threatening to Ripple Across Global Markets

- Trump발 무역분쟁이 통화전쟁(currency war)을 유발하였습니다. Trump의 연이은 달러화 약세 발언 -> 세계 외환시장(일$5.1tr 거래)에 파장 -> 증권시장과 개도국 자산시장을 위협하고 있다는 것.

지난 금요일 Trump가 중국과 EU가 환율 및 금리를 낮게 조작한다면서 재차 비난하였는데, 지난 주 중국 yuan화가 년내 최저로 하락하고 Euro화 및 엔화도 연초대비 약세를 보이는 데에 대한 경고임. 동 발언 여파로 $화는 지난주 후반 세계 주요 통화에 대해 약세였음.

중국의 Yuan와 급락과 관련 인민은행(People’s Bank of China)은 특별한 대응을 하지 않은 것으로 보임’

시장전문가는 이러한 중국 yuan화의 급락이 2015년 사례와 같이 다른 나라 화폐로 급속 전파될 것을 우려. 이 경우 세계 위험자산(중권, 석유 등 국제상품) 가격 하략 -> 국제상품 수출국들의 화폐 하락(예: the Russian ruble, Colombian peso, Malaysian ringgit) -> 여타 아시안 화폐 하락을 초래한다는 것.

다음주 PBOC가 어떤 대응을 할 지 지켜 봐야 하겠군요.  

정견만 드림

1. Trump Lines Up Fed Chairman as Fall Guy If Tax, Trade Moves Sour, Bloomberg

By Rich Miller

‎2018‎년 ‎7월‎ ‎21‎일‎ ‎오후‎ ‎1‎:‎01 Updated on ‎2018‎년 ‎7월‎ ‎21‎일‎ ‎오후‎ ‎9‎:‎42

• President again criticizes Fed for raising interest rates
• Treasury secretary says Trump ‘fully supports’ independent Fed

President Donald Trump looks to be lining up Federal Reserve Chairman Jerome Powell to be the fall guy if the president’s trade and tax policies don’t succeed.

In a series of comments over the past two days that shook financial markets, Trump attacked the Fed for raising interest rates and for undercutting his efforts to slash the U.S. trade deficit.

“He is just setting up someone else to blame if things don’t go according to his plan,” said Mark Spindel, founder and chief investment officer of Potomac River Capital LLC in Washington.

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Tightening ‘Hurts’

As authorities in Japan and Europe hold rates near zero, investors have pushed up the value of the dollar against the yen and euro. That’s made American products less competitive. Trump indicated he thinks that’s unfair.

“The United States should not be penalized because we are doing so well,” Trump tweeted on Friday. “Tightening now hurts all that we’ve done.”

The president, who’s launched tariff battles with most of America’s major trading partners, also lashed out at China and Europe for keeping their currencies weak in order to gain an edge for their exporters.

Treasury Secretary Steven Mnuchin defended Trump on Saturday, telling reporters on the sidelines of the G-20 finance ministers meeting in Buenos Aires that the president fully supports the independence of the central bank, and also isn’t trying to interfere in the currency market.

Much of Trump’s ire with the Fed seems directed at the impact that the central bank’s interest rate increases have had on the dollar. Despite swooning on Friday in response to Trump’s currency comments, the greenback is about 5 percent higher than it was when Trump imposed tariffs on steel and aluminum imports on March 23.

Trump’s budget director Mick Mulvaney separately took the Fed to task for allegedly not recognizing that the president’s policies can allow the economy grow faster without spurring inflation.

“Every time things seem to start getting a lot better, the Fed pumps the brakes,” he told Fox News on Friday.

The president’s comments shift attention during a week when he’s facing growing pressure over his relationship with Russian President Vladimir Putin, after the two leaders met on Monday in Helsinki. Trump came under fire for his lukewarm support during a news conference with Putin for the finding by U.S. intelligence agencies that Russia meddled in the 2016 election.

It’s not that unusual for politicians to blame the Fed when things go wrong with the economy. Trump’s outburst, though, comes at a time when the economy is “in a really good place,” according to Powell.

The unemployment rate under Trump has fallen to 4 percent, from 4.8 percent the month he was sworn in, and some economists predict gross domestic product last quarter expanded by about 4 percent -- double the pace in the first three months of the year. The Commerce Department’s first estimate for second-quarter GDP is scheduled for release on Friday.

Trump told CNBC in an interview broadcast on Thursday that he was “not thrilled” with the Fed over rate hikes.

“I am not happy about it,” the president said. “But at the same time I’m letting them do what they feel is best.” Trump also called Powell, who he appointed to succeed Janet Yellen, “a very good man.”

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All the Ways Trump Can (And Can’t) Influence Powell’s Fed Policy

The president is limited in how much direct pressure he can put on the Fed chief. Nominated by Trump and confirmed by the Senate with broad bipartisan support, Powell has a four-year term as chairman that ends in 2022. According to the Federal Reserve Act, a Fed chairman, or any Fed governor, can only be removed from office before his or her term ends “for cause,” which isn’t defined.

The president’s attacks on the Fed’s rate increases and the recent strengthening of the dollar highlight an inherent contradiction at the core of his economic policies.

While he’s trying to bring down the U.S. trade deficit by slapping tariffs on imports, his tax cuts are boosting the federal government’s red ink, putting upward pressure on interest rates and the dollar.

“This underscores the inconsistency in these policies,” said Joachim Fels, global economic adviser at Pacific Investment Management Co. in Newport Beach, California.

And it leaves Powell and the Fed vulnerable should they go awry.

2. Currency War Erupts, Threatening to Ripple Across Global Markets, Bloomberg

By Katherine Greifeld

‎2018‎년 ‎7월‎ ‎21‎일‎ ‎오전‎ ‎3‎:‎18 Updated on ‎2018‎년 ‎7월‎ ‎21‎일‎ ‎오후‎ ‎1‎:‎01

• Trade fight spreads to FX as president talks down dollar
• Equities, oil, and emerging-market assets at risk from FX war

The currency war has arrived.

So say some of the best and brightest in the $5.1 trillion-per-day foreign-exchange market. U.S. President Donald Trump on Friday accused China and the European Union of “manipulating their currencies and interest rates lower.” The comments came after the yuan plunged to its lowest level in a year, with little sign of China’s central bank intervening to stem the slide. They also follow a decline in the euro this year and add to the calculus that European Central Bank policy makers might need to consider when they meet next week.

As the world’s largest economies open up a new front in their increasingly acrimonious game of brinkmanship, the consequences could be dire -- and ripple far beyond the U.S. and Chinese currencies. Everything from equities to oil to emerging-market assets are in danger of becoming collateral damage as the current global financial order is assailed from Beijing to Washington.

“The real risk is that we have broad-based unravelling of global trade and currency cooperation, and that is not going to be pretty,” said Jens Nordvig, Wall Street’s top-ranked currency strategist for five years running before founding Exante Data LLC in 2016. Trump’s recent rhetoric “is certainly shifting this from a trade war to a currency war.”

China’s shock deval‎uation of the yuan in 2015 provides a good template for what the contagion might look like, according to Robin Brooks, the chief economist at the Institute of International Finance and the former head currency strategist at Goldman Sachs Group Inc. Risk assets and oil prices would likely tumble as worries about growth arise, hitting currencies of commodity-exporting countries particularly hard -- namely, the Russian ruble, Colombian peso and Malaysian ringgit -- before taking down the rest of Asia.

“Asian central banks will initially try to stem currency weakness through intervention,” Brooks said. “But then Asian central banks will step back, and in my mind, the big underperformer on a six-month horizon could be EM Asia.”

Read More: Mnuchin says weak yuan gives China an edge

Whether the People’s Bank of China attempts to anchor the dollar-yuan exchange rate near 6.80 to avoid further escalation is key, according to Nordvig. He says ECB President Mario Draghi may elect to step into the fray at the central bank’s July 26 policy meeting, given American attempts to talk the dollar down in January were extremely unpopular in Frankfurt.

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Treasury Secretary Steven Mnuchin said Friday that the U.S. is closely monitoring whether China has manipulated its FX rate, according to Reuters.

“There’s no question that the weakening of the currency creates an unfair advantage for them,” Mnuchin said. “We’re going to very carefully review whether they have manipulated the currency.”

The Treasury’s next semi-annual foreign-exchange policy report -- the government’s formal channel to impose the manipulator designation -- is expected in October.

The Department in its last report in April refrained from branding China with the label, but stepped up criticism of the Asian nation’s lack of progress in rectifying its trade imbalance with the U.S.

For a QuickTake explainer on currency wars, click here

“The exchange rate is one of many instruments China could use” to counter U.S. tariffs, Joseph Stiglitz, the Nobel Prize-winning Columbia University economist and former adviser to President Bill Clinton, said in a July 17 interview. “They would make a big effort to say what they are doing is not motivated by that,” he added. “We won’t be able to clearly tell. We don’t usually know the extent of intervention.”

The greenback will likely continue to suffer as investors heed Trump and back out of long dollar wagers, according to Shahab Jalinoos, Credit Suisse Group AG’s global head of FX trading strategy.

Hedge funds and other speculators are the most bullish on the currency since February 2017, according to data released Friday from the Commodity Futures Trading Commission that tracks positions through the week ended July 17.

“It has now been virtually defined as a currency war by the U.S. president, given that he explicitly suggested foreign countries are manipulating exchange rates for competitive purposes,” Jalinoos said. “The barrage of commentary will likely force the market to scale back long dollar positions.”

— With assistance by Saleha Mohsin, Lananh Nguyen, and Liz McCormick

Trump Opens a Dangerous New Trade-War Front, Bloomberg

Competitive currency deval‎uation probably won’t end well.

By Mark Gongloff

‎2018‎년 ‎7월‎ ‎21‎일‎ ‎오전‎ ‎5‎:‎45

Trade Wars: A New Front

President Donald Trump hasn’t quite won the trade wars yet.

Just a week ago, some were arguing his tariffs, and threats thereof, had already made China blink, suggesting the war was over before it had really begun. It turns out China wasn’t so much blinking as napping – not even bothering to negotiate with the U.S., according to Trump adviser Larry Kudlow. So Trump has cranked the rhetoric up to 11, threatening to slap tariffs on all $500 billion-plus of Chinese imports and hinting at a new weapon: deval‎uing the dollar to boost American exports.

The buck dipped yesterday after Trump first grumbled about China’s falling currency and how the Federal Reserve keeps strengthening the greenback by raising interest rates. That may have made Trump happy – but he should be careful what he wishes for, warns Robert Burgess. If investors take him too seriously, then they could dump U.S. assets in earnest. If that includes bonds, then borrowing costs would rise – one of the very things Trump has been complaining about. 

{"contentId":"PC6N0L6K50XU01","position":"box","dimensions":{"mobile":[[300,250],[1,1]]},"type":"Mobile Body Box Ad","positionIncrement":1,"targeting":{"position":"box1","positionIncrement":1,"url":"/view/articles/2018-07-20/trump-s-trade-war-a-dangerous-new-front"},"containerId":"box-XL7AYop"} But Trump doesn’t think about the long term – only immediate gratification, writes Jonathan Bernstein. From this surface-level perspective, a weak currency is good because it helps your exporters. But that ignores the impact on your importers, consumers and massive debt load.

Meanwhile, China and other targets of Trump’s trade ire are making free-trade deals without the U.S., note Bloomberg’s editors. Japan and the European Union signed a new pact this week. Other Asian nations are working on a separate agreement. The more the U.S. isolates itself from the rest of the world, the greater the odds it will never win these wars.

Fed Meddling

Less than a day after the White House walked back Trump’s initial criticism of the Fed, saying he respected its independence, Trump took to Twitter this morning to lay into it again. The bond market shrugged off the first attack, but fell hard on the second, possibly afraid the Fed might step back and let inflation build. Brian Chappatta suggests the first reaction was probably the smarter one. If anything, Trump has made the Fed more likely to protect its own independence by sticking to its rate-hiking plan.

Trump’s attacks betray a misunderstanding of how the economy, Fed and interest rates interact, writes Dan Moss – Trump can’t have low rates and strong growth at the same time, as he seems to want. Rates usually rise when the economy is stronger, and part of the Fed’s job is helping that process along to make sure inflation doesn’t get out of control. This is especially so when an already-strong economy gets an extra jolt of deficit-fueled steroids such as the tax cuts Trump and the GOP passed last year, notes Ramesh Ponnuru.

Bonus Fed reading: 

• If trade turmoil makes the Fed stand pat at its next meeting, then stocks might take it as a negative signalKomal Sri-Kumar 

Putin on the Ritz

{"contentId":"PC6N0L6K50XU01","position":"in-article","dimensions":{"mobile":[[5,19],[300,250],[1,1]],"tablet":[[5,19],[728,90],[1,1]]},"type":"In Article Flex Native Ad","positionIncrement":1,"targeting":{"position":"in-article","positionIncrement":1,"url":"/view/articles/2018-07-20/trump-s-trade-war-a-dangerous-new-front"},"containerId":"in-article-BnZHmQ8"} Because Trump has invited Vladimir Putin to visit the White House this fall – right before the midterm elections Putin’s agents are allegedly trying to undermine – it’s fair to continue to discuss the implications of his capitulation to Putin in Helsinki earlier this week. Despite what some critics say, this was not “treason” in a legal sense. Cass Sunstein explores whether it is “perfidy” in the more-obscure sense of what some Founding Fathers thought might be an impeachable offense. Trump’s behavior also does not seem to be perfidious yet, Cass writes – though it is certainly coming close.

And it is definitely confusing – even to Trump’s own Director of National Intelligence, Dan Coats, who was shocked yesterday when a member of the Fake News Media informed him of Putin’s White House invite. This is par for the course in Trump’s chaotic White House, Eli Lake writes, raising the question of why any of them stick around: “Coats said on Thursday that he would not advise the president to meet one-on-one with the Russian leader again. It’s a safe bet that this advice will be ignored.” 

Bonus Putin Reading:

• Putin may have conquered Trump, but he’s got some troubles at homeLeonid Bershidsky

Beware Drugmakers Bearing Promises

One unique feature of Trump’s presidency has been the spectacle of Corporate America massaging his ego by grandly announcing things they think he’ll want credit for – new plants, hiring, etc. The pharmaceutical industry is doing it too, responding to his frequent drug-pricing complaints by announcing they’ll go easy on prices for a while. But these promises tend to be empty, writes Max Nisen. The latest and most egregious example is Roche Holding AG, which today said it wouldn’t raise drug prices for the rest of the year – meaning not until its next regularly scheduled price hike is due to happen anyway. “ Truly heroic,” Max writes.

Chart Attack

Gosh, why are private-equity stocks doing so poorly, wonder private-equity chieftains. Stephen Gandel has the simple answer:

General Electric Co. still has a cash-flow problem, writes Brooke Sutherland:

Maybe it’s time for investors to stop selling off emerging market stocks, suggests Nir Kaissar.

Weekend Reading

Yes, the European Commission took $5 billion from Google; but it gave it an even bigger gift in GDPR. – Alex Webb

The future of the asset-management business isn't as bleak as you think. – Mark Gilbert 

Tighter sulfur-emission standards around the world will roil the coal market. – David Fickling

Israel’s new Jewish-state law is a betrayal of its democratic principles. – Hussein Ibish 

To see the future of many U.S. cities, look at Chicago. – Conor Sen 

The abortion pill could help women after Roe v. Wade is overturned – though that’s no sure thing. – Faye Flam

California slashed greenhouse-gas emissions while keeping its economy booming. – Nathaniel Bullard (from his newsletter)

ICYMI

Stocks are still in a bull market. The FBI has tape of Michael Cohen talking to Trump about paying off a Playboy model.

[도드람]

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