Global Financial News Recap for August 26, 2019
Deal or No Deal- No pay
Boris Johnson has vowed to not pay the 39 billion pound “divorce” payment following the UK’s exit from the EU. He says this will be the case whether or not there is a Brexit deal and stands firmly on the issue. Naturally, the EU is not too pleased and cites that this is a financial obligation they agreed to before talks on departure even arose. As things stand now, the biggest hurdle for the UK is dealing with a backstop with a hard Irish border. Either way, the fiasco will come to a close on October 31st.
Challenges for Monetary Policy
This past weekend, the world’s central bankers gathered in Jackson Hole, Wyoming to discuss the ever changing economic conditions. The bankers have acknowledged that times are changing and that traditional methods of forecasting and policy making will no longer suffice. The idea of stimulating an economy with interest rates is fleeting and central banks will need to adapt. This meeting comes on the heels of escalating trade tensions between China and the US with both levying more tariffs against one another. This further accentuates the idea that the US is no longer a predictable actor in global trade. Furthermore, the president of the Dallas Fed stated that the uncertainty lies more with Mexico than with China. This came after tariff threats were brought against them as well. Either way, the global trade uncertainty is causing financial market instability and hindering corporate investment. For the first time in a while central banks are facing an economic climate affected more by trade policy than by interest rates and other monetary tactics. Another global issue facing the bankers is the role of the dollar in the marketplace. Although the US only accounts for 10% of trade, and 15% of global GDP-dollars are being used to value deals and securities at a disproportionate amount. This is problematic because it reduces the ability for other nation’s (currencies) to implement effective monetary policy.
Less Infrastructure in China
In recent years, even the most remote parts of China have benefited from the boom in Chinese public spending. Citizens enjoyed the new roads, modern buildings, and jobs that came from infrastructure development. Now, China is restraining debt issuance and slowing spending. This is noteworthy because a major driver of the Chinese economy is infrastructure spending and as spending slows, so does their economy. Some believe that their economic issues are more centered around the trade war but others argue it has to do with them trying to keep their debt down.
Turkey and China Deportation
China’s has a Muslim ethnic group called the Uighurs and tensions run high between the two groups.China has been locking up millions of the Uighurs in an effort “to curb extremism” and has them renounce their faith. Naturally, many Uighurs have fled to countries around the world specifically, western Europe and Turkey. Until recently, the Turks have been very welcoming as they share some cultural similarities with the Uighers. As economic relations between the US and Turkey falter, Turkey is looking to boost its relationship with China. This causes fears that some of these Uighurs will end up being deported although the Turks have said they wouldn’t do such a thing. Nevertheless, this story illuminates a growing human rights crisis in China.
Venezuelan Refugees
Things are only getting worse for those in Venezuela. The economic crisis the nation faces was further exacerbated by news that the US will impose tougher sanctions. Naturally, more and more people began to flee the country. Countries like Peru, Ecuador, Colombia, and Brazil are seeing a mass influx in migrants crossing their borders. It is estimated that 4 million have already fled Venezuela, and this number may even reach 5 million. This is the largest mass migration in recent years and will cause economic challenges for the nations receiving these migrants. Although the UN has pledged to send monetary aid to support the influx, nation’s are claiming they are only seeing a fraction and need more money.
Jab Targets the Consumer Sector
JAB holdings is an investment company that owns companies like Keurig, Dr. Pepper, and Pret a Manger. They are seeking to raise $8 billion to expand further into the consumer sector. JAB is a German company that is coming out of some dark days. The founding family, the Reinmann’s recently admitted they abused slaves during the 2nd World War and were staunch Nazi supporters. In addition, a managing partner quit after disputes pertaining to deal timelines and management practices. Their area of focus is pet care and vet clinics.
Cloud to Weather the Clouds
The software industry has seen its winners and losers this week. Salesforce and Intuit have flourished while VMWare and Splunk sank. The difference between the two being their utilization of the cloud. The sector thus far has seen growth because of tax cuts and the growing trend in digital transformation. That is converting one’s organization to be more agile and implementing “hybrid cloud” systems. As IT spending cools, the consensus is that this sector will slow. Another trend showing a slow in growth is that many software companies aim to grow through mergers and acquisitions rather than developing technology in house.
In Other News:
Iran’s minister went to the G7 summit which might allude to a nuclear deal, the EU will rewrite budget rules, and Trump regrets not raising the tariffs higher. People are leaving major cities, tensions run high in Hong Kong protests, and German banks want to ban negative interest rates. Johnson and Johnson faces a court judgement over the opiod crisis, hospitality MBA’s serve transferable skills, and the Amazon is burning.