A Country Matures, An Exchange Rate Declines
After two weeks on the road visiting clients your analyst returns with a better view of the consensus outlook. There is, though, much in the consensus to disagree with. In particular it seems peculiar that the consensus believes the democratically elected government of Italy, with policies entirely contrary to EU membership, will be put through the bureaucratic meat grinder in Rome and Brussels and turned into EU sausage, in a similar process that minced the political representatives of Greece.
While this might well be the case, it is hard to understand that the grinding destruction of this democracy, even if it is only moderate compared to the Greek experience, can be anything but bad for growth and asset prices in the EU. Disciplining these politicians to abandon their manifesto promises and follow the ways of the EU is highly unlikely to be a painless experience, either for Italy or the rest of the EU. Nonetheless, investors are content to believe that a painless disciplining of Italy’s elected representatives is all but inevitable. We shall see.
Perhaps the most prevailing consensus view is that the recent weakness of the RMB represents a Chinese counter-punch in the trade war with the US. Coming when it does, it is easy to see the accelerated decline of the RMB as a tactical and not a strategic move. Comments by the PBOC on July 3rd have probably reassured many investors that the managed exchange rate regime is not at risk and that the RMB will continue to be managed against a basket of currencies. Your analyst does not agree. Continue reading
Satyajit Das has written an excellent article in Bloomberg which clearly details the risks facing the global financial and monetary system and how central bankers are out of monetary ammunition and weapons.
“No one likes to admit defeat. But global policymakers, who continue to insist that there’s more they can do to revive growth and inflation, are starting to sound like Monty Python’s Black Knight (click link to see video), the limbless and mortally wounded warrior who threatens to bleed on his victorious opponent. The truth is that governments and central banks have very few weapons left — and have probably lost any chance they once had of averting a prolonged stagnation. Continue reading
As China is gearing up to grab global financial hegemony from the United States, the world has witnessed its breakthrough in a recent development.
The unexpected 3% depreciation of the renminbi on May 3 shocked the whole world, resulting in turmoil in global financial markets, a sign that China’s economic clout has surpassed that of the US, Japan and European countries and that the renminbi is more influential than the US dollar, euro, Japanese yen and British pound. Continue reading