Politics

Politics

Balance of Power from Bloomberg Politics

Three words uttered in a throwaway moment sent markets into a tailspin last night, showing just how fragile the global economy has become — and how fraught the political environment is.The sense of panic that: “It’s over. Yes” caused is a reminder that, with deep recessions caused by the Covid-19 pandemic, now is not the time to add another log to the economic bonfire.The comments from Donald Trump’s hawkish trade adviser Peter Navarro — in response to a long question by a reporter on whether parts of the China-U.S. trade deal were “over” — necessitated the intervention of the U.S. president to hose things down.“The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Trump said in a Twitter post. China said Navarro’s comments had no credibility.The whipsaw from the trade remarks points to a larger challenge. Big global economic downturns, and resultant political problems at home for leaders, can create the temptation to point fingers, to pick fights. To fall into protectionism, to shut the door on skilled immigrants, to lift coronavirus aid programs too quickly for fear of the debt burden accumulating.That’s particularly dangerous when it involves the two biggest powers. There could be political points for both Trump and President Xi Jinping in returning to a full-blown trade war, but economically everyone would stand to lose.Hair-trigger markets are just one pointer to that.– Rosalind MathiesonTell us how we’re doing or what we’re missing at balancepower@bloomberg.net.Cities are changing fast. Subscribe to the CityLab Daily newsletter for news and perspectives on communities and neighborhoods around the world.
Global Headlines
Immigration freeze | Trump signed an order temporarily halting access to several employment-based visas, affecting hundreds of thousands of people seeking to work in the U.S. The technology industry said the move would hurt the economy. The issuance of new green cards will also remain halted through the end of the year.Setting the stage | Trump has repeatedly said vote-by-mail could cost him re-election. Some Republican strategists think he’s right, but, as Ryan Teague Beckwith reports, that’s more because the president’s words risk scaring away his own voters than because of fraud. Trump argues, without citing evidence, that mail-in balloting is open to manipulation, vulnerable to foreign forgeries and beneficial to Democratic rival Joe Biden.Trump is looking to put the setback of his poorly attended Oklahoma rally behind him with a visit to Arizona today, where he’ll return to the familiar issue of border security.Contractors inspect a work site following detonations to clear space for a new border wall in Lukeville, Arizona, on Feb. 26.Photographer: Caitlin O’Hara/BloombergWaning confidence | Sweden’s decision to buck the trend with a much softer lockdown than its neighbors initially found widespread public support. No longer. Now home to one of the world’s highest Covid-19 death rates — and with some European nations leaving Sweden off travel lists — backing for Prime Minister Stefan Lofven has slumped 10% since April.Next step | U.K. Prime Minister Boris Johnson may announce he’s halving the minimum “social distance” between people to one meter amid pressure from his own party to speed up the relaxing of virus restrictions as the economy faces its worst recession in 300 years. Pubs and restaurants will be able to reopen as soon as July 4, but many have warned they won’t be viable if forced to keep customers two meters apart.Arms request | India is urging Russia to accelerate the delivery of a missile defense system following its worst military clash with China along their disputed border in four decades. The two sides have reportedly agreed to disengage in the area, while the Chinese and Indian foreign ministers are due to meet today amid rising nationalism as the countries jostle for regional influence.What to WatchSingapore will hold an election on July 10 as Prime Minister Lee Hsien Loong seeks a renewed mandate amid the pandemic that has pummeled the economy.The U.S. has circulated a draft resolution among United Nations Security Council members to extend an arms embargo on Iran indefinitely, with the ban on weapons deals due to expire in October under the terms of the 2015 nuclear deal.The coronavirus is creating another problem for the world: contaminated medical waste, including masks, gloves and test kits made up largely of plastic.And finally … While Portugal has contained the spread of Covid-19 better than some other European nations, notably neighboring Spain, new infections are springing up in shantytowns inhabited by families of mostly African descent on the outskirts of Lisbon. Henrique Almeida takes a closer look at the social disparities that have been thrust onto the political agenda in the era of coronavirus.
Five Things to Start Your Day 23/6/20 – Bloomberg

Five Things to Start Your Day 23/6/20 – Bloomberg

China-U.S. trade deal is “fully intact,” it’s PMI day, and the virus latest.

Bump in the night

U.S. equity futures and Treasury yields briefly plunged after White House adviser Peter Navarro seemed to suggest in an interview on Fox News that the U.S.-China trade deal was over. Markets quickly recovered after President Donald Trump tweeted that the agreement was “fully intact” and Navarro said his comments were taken “ wildly out of context.” Michael Every, global strategist at Rabobank, wrote in a note that the whipsawed markets were a taste of things to come as he sees no way that China can stick to the terms of the agreement

Slow recovery 

Purchasing Managers Indexes in Europe pointed to a long, slow recovery in economic activity in the wake of the pandemic shutdown. France produced a notable performance with composite PMI rising to 51.3, passing the 50 level than indicates an expansion from the previous month, well ahead of economist forecasts. A similar reading for Germany came in at 45.8 while in the U.K. it was at 47.6, led by a recovery in manufacturing. There was some hope in the latest World Trade Organization outlook which said that government responses mean their worst-case scenario will likely be avoided. PMIs for the U.S. economy are published at 9:45 a.m. Eastern Time. 

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The Long Climb
While a near-term mechanical bounce in economic activity in response to the lifting or easing of lockdown measures looks likely, we expect the subsequent climb up to be long and arduous. Read more.

Pushing on a string

Speaking of government responses, companies in Europe have taken up less than 15% of the funds made available as loan guarantees by law makers, meaning  more than 2 trillion euros ($2.3 trillion) remains untouched as economies continue to reopen. The U.K. government is due to further ease restrictions with Prime Minister Boris Johnson to make an announcement of whether to reduce to guidelines on social distancing. In the U.S. new infections in Florida rose to another high and Texas Governor Greg Abbott said contagion was accelerating at “an unacceptable rate.”

Markets rise

After the earlier Navarro kerfuffle, global equity investors quickly got back to the job of buying stocks. Overnight, the MSCI Asia Pacific Index added 0.7% while Japan’s Topix index closed 0.5% higher. In Europe better than forecast PMI data helped push the Stoxx 600 Index to a 1.3% gain by 5:50 a.m. It’s a similar story with S&P 500 futures which were firmly in the green, the 10-year Treasury yield was at 0.718% and oil was over $41 a barrel

Coming up…

U.S. new home sales data for May and the June Richmond Fed Manufacturing Index are both at 10:00 a.m. The focus in Congress today is on coronavirus, with Anthony Fauci to testify in the House and the Senate to hold a hearing on China’s culpability for the pandemic. President Trump will be in Arizona, Joe Biden holds an event with former President Barack Obama, and John Bolton’s book is published. There are primaries in Kentucky, New York and North Carolina. The Bloomberg Invest Global summit continues with speakers including Treasury Secretary Steven Mnuchin. MSCI will announce the results of its 2020 Market Classification Review. 

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

And finally, here’s what Joe’s interested in this morning

If you ever point out that inflation in the United States has been mild, someone is sure to respond with: “but have you been to the grocery store lately!?” I’ve been hearing people say this line for years in a variety of economic conditions, but lately it’s true that there was a rise in food prices. Since the start of the year, food prices are up about 5%.

Still, all you have to do is read this article, and you’ll understand that it’s got nothing to do with the Fed or any of the standard culprits, and everything to do with the fact that thanks to the virus, the food supply chain is messed up in numerous ways. For example, the shutting of ethanol plants led to a decline in carbon dioxide supplies, which hit food companies that depend on it for refrigeration, forcing them to source it from new suppliers, which raised their costs. Meanwhile, port disruptions in China forced companies like Kraft Heinz to source apple juice from Chile to make Capri Sun. The list of disruptions goes on and on and they all add up to higher prices. Another thing is that the surge in drinking at home (because bars are closed) led to demand strains for aluminum cans.

Anyway, with all that’s going on, it would be weird if prices didn’t go up, even in some fantasy hard-money scenario where we were paying in gold. Sourcing food got harder during the worst of the crisis. It’s the market at work.

Bloomberg Supply Lines

Bloomberg Supply Lines

Staring at its first recession in four decades, India faces a long hard slog to regain its former glory days of 8%-plus growth.

As it emerges from the world’s strictest stay-at-home rules, Asia’s third-largest economy finds local supply chains are broken, little demand for its goods in overseas markets and an escalation of a border dispute with its giant neighbor — China, which also happens to be the country’s second-largest trading partner.

All these bode ill for Prime Minister Narendra Modi’s vision to transform India into a $5 trillion economy over the next five years from $2.7 trillion currently and make it more attractive to foreign investors. Millions of Indians have lost their jobs since the lockdown was imposed in late March. Many migrants, who make up nearly a fifth of the workforce and are key to building its cities and running factories, fled to their villages.

They’re unlikely to return in a hurry, and that means output at India’s production lines won’t be restored before September. For a country whose financial year runs from April to March, that means half the year is written off. Bloomberg Economics sharply cut its growth forecasts recently and now expects gross domestic product to contract by 10.6% in the fiscal year, compared with a 4.5% drop forecast in April.

The slowdown will dim India’s allure at a time when its trying hard to win over U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China. Modi’s government has reached out more than 1,000 companies in the U.S. and through overseas missions with incentives for manufacturers, including medical equipment producers and food processors, along with apparel, leather and auto-part makers.

But the plans to brighten India’s investment allure have run into more headwinds, especially as a seven-week military standoff between the two nuclear-armed powers of China and India flared up and stoked geopolitical tensions.

While India said it remains committed to peace, an escalation risks even more bumps for firms from Alibaba and Xiaomi to Tata Motors and probably will spur companies to rewrite supply pacts. Swathes of Indian businesses also rely on raw materials from China and another bout of disruption can only prolong India’s recovery.

 Anirban Nag in Mumbai

Charted Territory

Early South Korea export figures show shipment declines easing in June amid resilient semiconductor demand and more purchases from China that raise some hope the global trade slump may be bottoming. Average daily shipments fell 16% in the first 20 days of the month compared with the prior year, improving from a decline that exceeded 20% in May. Total semiconductor shipments, the country’s biggest source of trade income, rose 2.6%, while those of ships increased 36%. 

Today’s Must Reads

  • Clipped wings | China suspended poultry imports from a Tyson Foods plant where hundreds of employees caught Covid-19, stoking concerns over U.S. and global meat exports.
  • Hop off the bus | Airbus plans to pursue voluntary job cuts before seeking forced reductions, as it aims to bring down costs without inciting a political uproar in France and Germany.
  • American made | As the OPEC+ alliance sticks to its guns in trying to curb oil output to shore up prices, Asian buyers are increasingly looking to the U.S. for a cheaper source of supply.
  • Super-charged | Singapore is positioning itself for a post-Covid world with massive investment in innovation, on top of the immediate support it’s giving to help the economy rebound from possibly its worst downturn on record.
  • Still the king | The U.K. remains the most attractive place for foreign investment in financial services in Europe, despite the ongoing pressures of Brexit and the economic fallout from the coronavirus pandemic.
  • Signs of the times | “Novel farming,” which turns out lucrative lettuces and herbs in indoor farms, is seeing a massive jump in demand. In these days of lockdowns and food insecurity, canned meat is also enjoying a moment.

On the Bloomberg Terminal

  • Brexit effect | The U.K. construction sector’s supply patterns could be at least partially readjusted away from the EU in favor of China and other non-EU countries after Jan. 1, Bloomberg Intelligence says.
  • Choppy waters | Bonds in Maersk, the No. 1 container-shipping player with a market share of about 17%, may not fully reflect the risks ahead, according to Bloomberg Intelligence.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.