China's growth to perk up

In a fantastically renewed effort, the Chinese government is turning once again towards capitalism in order to boost economic growth. According to the article, the Chinese government "cut taxes on personal incomes and corporate profits. Authorities ordered banks to lend more to small businesses. And planners cranked up the infrastructure machine again." While this would indicate strong government interference in the economy, a major stimulus package is apparently off the table while the fear of debt is still strong.
The article cites two particular reasons for all of this growth-oriented action. The first is the trade war with the States. After appearing "to be on the back foot last year as its stockmarket tumbled," China has seen the positive aspect of being in a strong negotiating position. The second is the 70th anniversary of Communist Party rule (October 1st). On a day which should be for reminding the Chinese people of how great communism is, the Chinese government does not want the day "marred by grumbles about the economy."

Article: https://www.economist.com/finance-and-economics/2019/04/17/chinas-growth-is-set-to-perk-up-after-a-decade-low

Notre Dame Costs

https://www.usatoday.com/story/news/world/2019/04/20/notre-dame-cathedral-fire-1-billion-rebuild-paris-france-church/3528844002/

The article lays out just how much it will cost to rebuild the Cathedral after the tragic fire.  Specifically how it may cost up to 3 Billion Euros to rebuild the Cathedral within President Macron's timeline of rebuilt within five years.

It will be interesting to see if the money can be raised in private contributions or if the French government will need to step in.

The world’s worst-performing currency could slip into ‘crisis’ mode later this year

Argentina after being hit with a recession is currently preparing for presidential elections towards the end of the year. The Argentine Peso settled around $43.68 this past Monday and it has received the title of the world’s worst-performing currency this year. They are super sensitive to any shift in the peso and they use it as a guide to their economy.

President Mauricio Macri’s  re-election is threatened due to the extensive inflation that run over 50%, and the rising of poverty rates by 32% during his presidency. The Argentina government is functioning within an IMF bailout package deal that requires an ease in its primary fiscal deficit. However, the economy shrank more than 6% during the last three months of 2018. The austerity measures taken by President Macri has led many people to be unhappy with Macri for cutting utility subsidies. Economists note there is no way Argentina will have a higher purchasing power than compared to last year. However, Macri needs to be able to change economic expectations in order to help the country and gain re-election. If Mauricio Macri is not re-elected all bets are off for the maintenance of the  IMF bailout terms. Former President Cristina Fernandez who is running against Macri, has been a free spender and is not likely to adhere to the IMF bailout terms.

Source: https://www.cnbc.com/2019/04/09/argentinas-peso-could-slip-into-crisis-mode-ahead-of-elections.html

Treasury Issues Rules on Tax Breaks for Opportunity Zones

Some of the areas were selected as opportunity zones, which is a tax break zone for low-income communities. It could help start-up businesses to invest in the areas. There would be the regional development in economy and infrastructure as well.
The benefits of the investors in the opportunity zone will be largely 3:
1. Investors are temporarily deferred of inclusion in taxable income for capital gains reinvested in the fund.
2. Step-up in basis for capital gains via opportunity funds. The basis is increased by 10% if the fund is held by the taxpayer for at least 5 years, and adds up 5% more if held for at least 7 years.
3. A permanent exclusion from taxable income of capital gains if the funds are held for at least 10 years.

However what the article brings up is that this regulation may just benefit real estate developments rather than start-up businesses. If that happens, the outcome may bring economic development, but the wealth gap may increase. Values of the opportunity zones will increase if real estates and businesses are invested in them, but if real estate grows more rapidly than the business sectors, the lease or property price may become more burdensome to the inhabitants of the zones. Hopefully it does not result in a bigger income inequality, but an overall improvement of certain rural (or poor) areas of the States.



https://www.nytimes.com/2019/04/17/business/economy/opportunity-zones-treasury-regulations.html

Irish Brexit border issue could endanger EU-U.S. trade deal

    In the midst of Brexit negotiations, the European Union announced it was willing to begin the process of solidifying trade agreements before the end of the year. U.S. House Speaker Nancy Pelosi asserted that the US would not accept any trade agreements with Britain if any Brexit-related outcome tampered with the Good Friday Agreement. These accords currently hold the peace between the North of Ireland and the Republic of Ireland after literal centuries of sectarian violence exacerbated by British colonialism and Irish nationalist movements. A crucial component of this tenuous peace is the lack of a hard border between the two areas, allowing for relatively free movement on both sides. Reportedly, the European Union has also refused to accept any British withdrawal agreements that would require elements of a hard border, as that would almost definitely incite unnecessary violence. Opponents of these requirements from the British Parliament are concerned about the lack of a “clean break” that may threaten future trade agreements with other nations.

    Overall, I find this article and its general subject to be thought-provoking. During this time of overall economic precariousness, the US’s and EU’s dedication to keeping a seemingly minute detail that is crucial for the peace in Ireland is admirable. Despite the uncertainty surrounding the existence of any possible benefits to Brexit, I also thought it was interesting to see these entities potentially forfeit economic gains and trade deals for the sake of the peace accords they helped broker. In a broader macroeconomic sense, consumer confidence in Ireland would undoubtedly nosedive from a variety of factors if the Good Friday Agreement were in any way hindered by Brexit negotiations. https://www.reuters.com/article/us-britain-eu-usa/irish-brexit-border-issue-could-endanger-eu-u-s-trade-deal-congressman-idUSKCN1RV0JO

Trump Says Fed Should Cut Rates and Lift Economy

On Friday, April 5^th, President Trump called for the Federal Reserve to cut interest rates in an effort to continue unprecedented economic growth since his election. Historically, the central bank has remained independent of the Presidential administration. As of recent, President Trump has been highly critical of the actions taken by the Fed. He believes that interest rate hikes imposed by the Fed have really slowed the economy. In response, he has called for the Fed to resume quantitative easing as opposed to continuing their current policy of quantitative tightening. As he begins his reelection campaign, Trump aims to focus on his accomplishments regarding the health of the economy. Economic growth is forecasted to slow within the fiscal year, however, unemployment remains historically low along with inflation, resulting in a strong economy. Recently, the Fed announced their plans to halt interest rates which have jumped four times within the last year. President Trump announced plans to nominate Herman Cain, and Stephen Moore, to the Feds seven-member board. Initially, President Trump hoped to achieve consistency within the Fed after electing Jerome Powell, however these recent nominations show a transition from the Presidents previous selections. Many remain highly critical of President Trumps involvement with the Fed and worry that his influence on the Fed is interfering with the long-term stability of the economy.

Japan Exports Hit by Weak China Demand, Raising Risk of Economic Contraction

Japan’s economy relies heavily on trade and the amount of goods that the country exports. With China’s economy going through a contraction period and the demand for Japanese exports decreasing, there is fear that Japan’s economy is now going through a contractionary period. This past March, exports fell 2.4% following a 1.2% drop in February. As companies’ profits are being hindered, businesses will not be able to invest in themselves as much, workers’ wages will drop, and consumer spending will slow. With the Japanese economy contracting, Prime Minister Shinzo Abe will have to delay a planned sales tax hike that is needed in order to fix Japan’s public debt burden. This plan will have to be pushed off as it is considered a contractionary policy and would hurt the economy even further. The Bank of Japan Governor Kuroda believes that the economy would quickly recover as global growth grows although there are remaining risks. The United States and China trade war as well as Brexit still need to be resolved and could potentially have a negative effect on Japan’s exports once again.  

            I was surprised to see that a decline in China’s economy and imports had this negative of an effect on Japan’s economy. I think given the tensions with the US and China trade talks, Japan’s economy will remain a little rocky, especially when including the impending Brexit decision. It will be interesting to hear more about how Japan handles this export issue and what they decide to do about their planned sales tax hike. Hopefully, this contractionary period does not last too long. 

Article: https://www.reuters.com/article/us-japan-economy-trade/japan-exports-hit-by-weak-china-demand-raising-risk-of-economic-contraction-idUSKCN1RT01Q

The Death of Retail?

As we are about a third of the way through the year, more retail stores are planning to shut their doors than did throughout all of 2018. In the past, when stores would close their doors, liquidating companies would come in and buy bulk amounts of clothes and store them in a warehouse; their strategy is to wait until interest picked back up and someone wanted to re-open the store with the merchandise. However, nowadays that isn't the case. With the rise of e-commerce, more and more stores find themselves shutting their doors for good and filing for bankruptcy as the number of options that now exist because of online retail has forced them out of the market. Not only does this hurt people within the companies, but it hurts the brand of them as well too which is bad in the long run. Often during these liquidation sales, stores become chaotic and they are unable to get the staff to manage it as no one wants to take a job for a store that won't exist in a month. When this image is seen by the public, it further supports the drive for e-commerce; why get trampled in a store when you can buy something from the comfort of your own home?

But, the closing of these stores is nothing to fear. Rather it's a signal that preferences in shopping are changing. Specifically, it's starting to look like the brick-and-mortar experience could exist to complement the online shopping experience in the future, as companies like Amazon are experimenting with small physical locations.

Moving forward, I am interested to see where the excess of retail employees may go, as there appears to be a strong demand for labor in other sectors. Now it appears to be a question of what sector they will move to. I am also looking forward to how physical retail locations change and adapt to complement e-commerce rather than being a substitute.

SOURCE: https://www.nytimes.com/2019/04/12/business/retail-store-closings.html

China first quarter GDP growth set to slow to 6.3 percent, more policy support needed

Article: https://www.reuters.com/article/us-china-economy-gdp/china-first-quarter-gdp-growth-set-to-slow-to-6-3-percent-more-policy-support-needed-idUSKCN1RS2F1

This Wednesday, China is expected to report the slowest economy growth they have had in the past 27 years - 6.3%. However, investors and trading partners alike are confident recent data will demonstrate economic recovery. Though these hopes are still left with questions regarding the length and prominence of said rebound.

To support recovery, China has cut taxes by billions of dollars and have also increased infrastructure spending to jump-start growth. Their banks have also lent out a first quarter record of $864.8 billion dollars which is larger than Switzerland's GDP. However, many experts are still saying more needs to be done in order to get China back on its feet.

China should be watched with a close eye as it is the second largest economy in the world. Even though China has grown considerably faster than other economies, the U.S. for example, they are still playing a catch-up game. Even though China has been in a position to grow so quickly, it is worrisome to see their growth cool down.

Risk Rally Causes Pivot Away from Gold

The WSJ article "Gold Falls Out of Favor as Risk Rally Continues into Spring" by Amrith Ramkumar details the fall in gold's popularity among investors by 4% since highs in February. Gold is often times considered a "haven" for investors since it is believed that the precious metal has a negative beta and moves in opposition to markets - making it a safe bet in risky times. Currently, however, the current market optimism and the drop in gold popularity is a signal that "rising confidence in the world economy" is pushing investors away. More specifically, this market optimism stems from a hopeful outlook that the US and China will reach an agreement and end the tariff debacle and also confidence from the Federal Reserve, claiming that they will not be raising interest rates any higher in 2019. As gold has taken a hit, nearly wiping out all of its returns from the beginning of the year, the flipside is that there has been a rally in the stock market, and other materials like copper and oil. Peter Hug, director of sales at Kitco Metals claims that people are "getting bored" with gold since it is like "watching paint dry." Although investors who had confidence that gold would finally rally above $1,350 troy oz. have lost this bet, I think this signal to the market it rather important in terms of the confidence and optimism that investors have right now. Earlier this semester, there was so much literature about a slowing economy and the stock market took quite the hit in December of 2018, yet "mounting confidence in US growth" which has lifted the dollar and T yields, paints a much rosier hue of the current economic outlook and seems to be impacting the way that investors are handling the risk/return trade off.

Link: https://www.wsj.com/articles/gold-falls-out-of-favor-as-risk-rally-continues-into-spring-11555416000

Signs of Global Economic Recovery Emerging

According to CNBC, the worries about the Global economic failures are starting to fade away. A senior international economist, Alejandra Grindal, says that because many of the manufacturing purchasing managers indexes are finally starting to stabilize for the first time in 10 straight months which may indicate the worst has passed us. Not only this, but the expansion in the manufacturing sector rose for the first time in six months. This is a good sign for the international economy moving forward, as this might indicate that the economy will finally start to get back to a stable state.

In addition to this, the trade tension between the US and China are finally starting to cool off. Which means that there might not be anymore hikes in rates throughout the next quarter. Although this idea is not 100%, it is a good sign for the economy moving forward, and our trade deals that rates will not hike and tension is starting to cool off. It will be interesting to see what happens in the near future if this continues or if the economy will start to fall off again.


Source: https://www.cnbc.com/2019/04/11/signs-of-a-global-economic-recovery-in-the-second-half-are-emerging.html