October 2019

MORE CHEAP MONEY = MORE CHEAP TRICKS

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Another week, another stream of mainstream media headlines that simplify complex economic and geopolitical facts and factors, distilling them down to a reason or two as to why markets move and economies shift.

Last week, for example, after the Dow slumped on Tuesday, 8 October after reports of failing trade negotiations between the U.S. and China, markets rebounded when President Trump tweeted brighter trade deal prospects. 

However, the markets closed out on Friday, 11 October losing some gains following reports the deal would be achieved in “phases.” 

ECONOMIC FEAR FACTOR

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It was reported the week of 7 October that Kristalina Georgieva, the new Managing Director of the International Monetary Fund, asked staff members to analyze the risks of a prolonged period of negative interest rates and what the “exit strategy” might be.
“Prolonged low rates also come with negative side-effects and unintended consequences,” Ms. Georgieva observed. “Think of pension funds and life insurance companies that are taking on more risky investments to meet their return objectives.” 

INDIA’S BANK HOLIDAY?

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One of India’s most popular banks, Punjab & Maharashtra Co-operative Bank, with deposits of nearly $1.5 billion, lent most of its money to a Mumbai real estate company now in bankruptcy. As a result, the Reserve Bank of India had to step in and take control of PMC Bank.

The central bank also announced depositor withdrawal restrictions of 40,000 rupees ($561), which allows 77 percent of the bank’s customers to withdraw their entire account balance. 

BUBBLE, BUBBLE, OIL AND TROUBLE

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Following the drone strike on Saudi oil fields by Houthis on 14 September, Brent crude spiked some 15 percent to over $66 per barrel, the largest one-day increase ever recorded.

As we go to press on 15 October, Brent crude is around $59 a barrel. With supply continuing to outpace demand and despite having cut oil production 1.02 million barrels a day – blaming trade wars, Brexit, and recession fears – OPEC pledged to further reign in oil production when they next meet on 5 December. 

STATESIDE STATISTICS

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The Average Joe’s Main Squeeze

The U.S. labor market is trending down. The number of jobs created in August fell 4 percent from the same time a year earlier, to 7.1 million. 

The job numbers in June and July also fell. The last time jobs dropped three straight months in a row was in 2009.

New jobs are only averaging 161,000 a month this year, whereas they were 223,000 in 2018. 

And the layoffs continue. 

BYE BYE BUCKS?

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IMF data show that central banks are subtly ditching the dollar. 

Goldman Sachs reports dollar reserves slipped 4 percentage points in 2017 and 2018. Still the coin of the global realm, two-thirds of world currency reserves and securities issuance are denominated in the dollar, compared to only about 20 percent for the euro and 2.1 percent for the Chinese yuan.

Yet foreign governments are considering buying and selling oil with the euro to prevent the U.S. from intervening in foreign policy.

TURKEY INVADES, TRUMP FEELS POLITICAL HEAT

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Last Wednesday, Turkish President, Recep Tayyip Erdoğan launched a military offensive into Northern Syria.  He said the attack was “to crash the terrorist organization in a couple of days in all of the operation zone.” 

The “terrorist organization” he referred to, the Syrian Democratic Forces (SDF), are Kurdish allies of the United States.

Erdogan claims the SDF are causing security issues on its Northern border with Syria.