Reuters blog archive
The stock market has, over time, gotten somewhat more used to the idea that U.S. federal government activities add to market consternation and volatility, not reduce it. In the 1990s, there used to be a catchphrase that “gridlock was good for equities,” but that came during a long period of economic growth and on the back of policies that Wall Street generally supported – financial services reform, welfare reform, and not much else. That’s no longer the case. We’ve already seen the detrimental effects on the markets of the U.S. debt ceiling fiasco that led to the first-ever downgrade of the U.S. credit rating in 2010 and subsequent fights about the debt ceiling (though that has abated somewhat).
The talk about “uncertainty” coming out of Washington is a somewhat overstated game – be it tax policy and the like, there’s always uncertainty in life – but the latest cause for volatility has been specifically related to the renewal of the Export-Import Bank, currently being batted around in Washington with the idea that Congress will end up renewing its charter for a few months (right now mid-2015 looks like the best bet) before invariably taking up the issue again.
It’s not unprecedented for this to be a political football (votes have been close in the past and it has been used as a poster child for Washington-related excess), but this year’s battle is more heated than most in its past. Ex-Im head Fred Hochberg, who spoke at a Reuters summit Wednesday, said the bank was at par with what others were doing and eliminating it would tilt the balance against U.S. exporters, threatening 205,000 jobs.
About one-fifth of its $37 billion in annual loans are for small businesses, but many in the GOP are unmoved. With the idea of an on-again, off-again situation emerging similar to the now-annual debt ceiling extension back-and-forth, some investors believe companies using the Ex-Im bank may head elsewhere for more secure sources of funding that are sure to be around for more than a few months before having to face another annoying fight about its future.
It looks like Britain might have to wait a while longer before its much-touted export recovery materialises.
Export orders growth flagged in July, according to two surveys of manufacturers over the last week.
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The subtitle of Stephen Roach's new book has an arresting image. "Unbalanced: the Codependency of America and China" describes two economies with mutually reinforcing dysfunctions. This approach is sometimes helpful, but the book's strongest argument concerns the retired Morgan Stanley economist's homeland. He makes a persuasive case that "most of America's deep-seated economic problems...are of its own making."
For a euro zone economy that is broadening, but still relying heavily on Germany for growth, as well as inflation that is dangerously low and well below target, that may add another line to the European Central Bank's worry sheet.
from Global Investing:
China's influence on emerging markets, let alone the global economy, cannot be understated. Great strides have been made to build the economy over the past 30 years, but not without its casualties. In a conversation with Michelle Gibley, director of international research at Charles Schwab, I asked her about a new research paper she's published on why, amid the angst and doubt on emerging markets, she has shifted her views. She's turned positive on Chinese large-cap stocks and says the China of the past was running out of gas.
Click here to the interview. (My thanks to Freddie Joyner for helping get the audio into workable shape.)
from Expert Zone:
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The United States is the largest economy with a share of more than 22 percent in the world GDP. Naturally, even small changes in its behaviour have a perceptible impact worldwide. To India, the United States counts for a lot, although possibly less than it does for China.
from The Great Debate:
The Obama administration has quietly embraced the most ambitious agenda on trade and investment liberalization in the past two decades.
The United States is currently juggling no fewer than five high-level trade negotiations: free trade talks with the European Union; the Trans-Pacific Partnership (TPP) talks with a dozen Asia-Pacific countries; a new Information Technology Agreement covering trade in high-tech goods; negotiations on liberalizing services trade though the World Trade Organization, and a last-ditch effort this week to agree on new trade facilitation measures at the WTO ministerial meeting in Bali.
from The Great Debate:
A recent visit by President Obama to an Ohio steel mill underscored his promise to create 1 million manufacturing jobs. On the same day, Commerce Secretary Penny Pritzker announced her department's commitment to exports, saying "Trade must become a bigger part of the DNA of our economy."
These two impulses -- to reinvigorate manufacturing and to emphasize exports -- are, or should be, joined at the hip. The U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.
from Global Investing:
Emerging stocks, in the doghouse for months and months, haven't done too badly of late. The main EM index, has rallied more than 11 percent since its end-August troughs, outgunning the S&P 500's 3 percent rise in this period. Bank of America/Merrill Lynch strategist Michael Hartnett reminds us of the extreme underweight positioning in emerging stocks last month, as revealed by his bank's monthly investor survey. Anyone putting on a long EM-short UK equities trade back then would have been in the money with returns of 540 basis points, he says.
Undoubtedly, the postponement of the Fed taper is the main reason for the rally. Another big inducement is that valuations look very cheap (forward P/E is around 9.9 versus a 10-year average of 10.8) .
from Global Investing:
China's slowing economy is raising concern about the potential spillovers beyond its shores, in particular the impact on other emerging markets. Because developing countries have over the past decade significantly boosted exports to China to offset slow growth in the West and Japan, these countries are unquestionably vulnerable to a Chinese slowdown. But how big will the hit be?
Goldman Sachs analysts have crunched the numbers to show which markets and regions could be hardest hit. On the face of it non-Japan Asia should be most worried -- exports to China account for almost 3 percent of GDP while in Latin America it is 2 percent and in emerging Europe, Middle East and Africa (CEEMEA) it is just 1.1 percent, their data shows.