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US president Trump to attend World Economic Forum annual meeting in Davos on 21-24 January

  
  Analysis
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The WEF confirms, releasing a list of attendees for the event

Trump

The US delegation will also comprise of Mnuchin, Ross and Lighthizer. From the EU camp, the notable attendees will be ECB president Lagarde as well as European Commission president von der Leyen.

Something to look forward to next week after the trade deal with China is all wrapped up.
  
  Analysis
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Highlights of the FOMC decision on December 11, 2019:

  • At the prior decision on October 30, the Fed cut rates 25 bps
  • The market has priced in virtually no chance of rate move through February
  • IOER 1.55% vs 1.55% prior
  • Fed drops language about ‘uncertainties about this outlook remain’
  • Vote was unanimous
  • “The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate”
  • No changes in the economic outlook paragraph
  • Says “the current stance of monetary policy is appropriate”
  • Leaves forecasts for GDP and inflation unchanged, lowers unemployment
  • Median forecast is for one rate hike in 2021 and one in 2022

Dropping the language about uncertainties is moderately hawkish. However the market is basically unmoved in the aftermath. The Fed is clearly signaling that it’s on the sidelines here.

International Monetary Fund wants Indian government to be more credible, transparent on fiscal numbers

  
  Analysis
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New Delhi needs to become more “transparent” on the fiscal numbers as it is a “laggard” among the G20 peers on this front, a senior official from the International Monetary Fund said here on Wednesday.

The government has been missing its budgeted fiscal targets for the past few years and there is a need for a “credible fiscal consolidation” which is more ambitious as well, the official said, adding this is more so as government has not addressed how it will make up for the massive Rs 1.45 lakh crore tax giveaways in the form of corporate tax cuts.

The comments come amid allegations of the budget math not adding up with some pointing to a Rs 1.7 lakh crore hole in the estimates, and also over 100 economists questioning the official data computation.

“Fiscal transparency should be increased. It is fairly difficult for the private sector to get the full picture on fiscal standing,” the fund’s deputy director Anne-Mary Gulde said speaking at an NSE event here. 

“India is somewhat lacking in a programme on G20 data initiative on fiscal transparency where comparative countries have all made greater progress,” she added.

She said there is also a need for more credible fiscal consolidation as such a move will help reduce the relatively high level of debt and free up financial resources for the private sector. (more…)

OECD sees global economy slipping towards weakest growth in a decade

  
Analysis, Economy
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OECD cuts forecasts to the global economy, warns of entrenched uncertainty

Global
  • 2019 global GDP growth at 2.9% (previously 3.2%)
  • 2020 global GDP growth at 3.0% (previously 3.4%)
  • 2019 US GDP growth at 2.4% (previously 2.8%)
  • 2020 US GDP growth at 2.0% (previously 2.3%)
  • 2019 China GDP growth at 6.1% (previously 6.2%)
  • 2020 China GDP growth at 5.7% (previously 6.0%)
  • 2019 Eurozone GDP growth at 1.1% (previously 1.2%)
  • 2020 Eurozone GDP growth at 1.0% (previously 1.4%)
  • 2019 Japan GDP growth at 1.0% (previously 0.7%)
  • 2020 Japan GDP growth at 0.6% (unchanged)
  • 2019 UK GDP growth at 1.0% (previously 1.2%)
  • 2020 UK GDP growth at 0.9% (previously 1.0%)
Those are quite the amount of downgrades relative to its May forecast.
OECD says that trade tensions are the main cause for a more fragile and uncertain outlook to the global economy. Noting that intensifying trade conflicts and governments not doing enough to prevent damage will hurt global growth momentum going into next year.
The 2.9% forecast for global growth this year is the weakest projection since the financial crisis, almost a decade ago.
OECD

Eurozone July construction output -0.7% vs 0.0% m/m prior

  
Analysis, Economy
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Latest data released by Eurostat – 18 September 2019

  • Prior 0.0%; revised to +0.6%
  • Construction output +1.1% y/y
  • Prior +1.0%; revised to +1.6%
The positive revisions sort of take away some of the negative impact from the headline monthly figure but nonetheless, it still underscores some weakness and sluggishness in construction activity in the region too start Q3.
A minor data point but feeds into the overall softness of economic activity in the euro area as we navigate through the second-half of the year.

IMF says monetary easing unlikely to make a lasting improvement in trade balance

  
Analysis, Economy
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Exchange rates can’t do it all

The IMF is out with a blog post about the effectiveness of using monetary policy to weaken a currency and boost exports.
“One should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance,” the authors write.
They estimate that a 10% decline in a country’s currency improves the trade balance by about 0.3% of GDP in the near-term, largely via a contraction in imports. Over three years the effect is larger and hits an average of 1.2% of GDP.
One thing they highlight is that much international trade is done in US dollars. This slows and limits the effects of weakening the currency.

Full text of the July 31, 2019 FOMC statement

  
  Analysis
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The full text of the July 31 statement from the FOMC

Federal Reserve issues FOMC statement
Information received since the Federal Open Market Committee met in
June indicates that the labor market remains strong and that economic
activity has been rising at a moderate rate. Job gains have been solid,
on average, in recent months, and the unemployment rate has remained
low. Although growth of household spending has picked up from earlier in
the year, growth of business fixed investment has been soft. On a
12-month basis, overall inflation and inflation for items other than
food and energy are running below 2 percent. Market-based measures of
inflation compensation remain low; survey-based measures of longer-term
inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. In light of the implications of
global developments for the economic outlook as well as muted inflation
pressures, the Committee decided to lower the target range for the
federal funds rate to 2 to 2-1/4 percent. This action supports the
Committee’s view that sustained expansion of economic activity, strong
labor market conditions, and inflation near the Committee’s symmetric 2
percent objective are the most likely outcomes, but uncertainties about
this outlook remain. As the Committee contemplates the future path of
the target range for the federal funds rate, it will continue to monitor
the implications of incoming information for the economic outlook and
will act as appropriate to sustain the expansion, with a strong labor
market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the
target range for the federal funds rate, the Committee will assess
realized and expected economic conditions relative to its maximum
employment objective and its symmetric 2 percent inflation objective.
This assessment will take into account a wide range of information,
including measures of labor market conditions, indicators of inflation
pressures and inflation expectations, and readings on financial and
international developments.

The Committee will conclude the reduction of its aggregate securities
holdings in the System Open Market Account in August, two months
earlier than previously indicated.

Voting for the monetary policy action were Jerome H. Powell, Chair;
John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James
Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles.
Voting against the action were Esther L. George and Eric S. Rosengren,
who preferred at this meeting to maintain the target range for the
federal funds rate at 2-1/4 to 2-1/2 percent.

IMF lowers global growth forecast to 3.2% from 3.3%

  
Analysis, Economy
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The latest forecasts from the IMF

The latest forecasts from the IMF
The previous round of forecasts were in April:
  • 2020 global growth to 3.5% from 3.6%
  • US to 2.6% vs 2.3% prior
  • 2020 US growth 1.9% vs 1.9% prior
  • Eurozone 1.3% vs 1.3% prior
  • 2020 Eurozone raised to 1.6%
  • China 6.2% vs 6.3% prior
  • 2020 China 6.0% vs 6.1% prior
  • Canada 1.5% vs 1.5% prior
  • Germany 0.7% vs 0.8% prior
  • 2020 Germany to 1.7% vs 1.4% prior
  • Italy +0.8% vs +0.1% prior
  • Advanced economies 1.7% vs 1.8% prior
  • Emerging markets 4.7% vs 4.4% prior
  • 2020 emerging markets 4.7% vs 5.0% prior
  • World trade volume lowered to 2.5% vs 3.4% prior
  • Full report
In April, the IMF lowered its forecasts. Since October, this is the fourth downgrade in global growth and the statement said downside risks have intensified going forward, noting trade.
“The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the report says.
They noted that fixed investment is particularly soft, even in places where growth has surprised to the upside. They note high inventories in the UK and US.

Iran has enriched uranium beyond security limit set by nuclear deal

  
Analysis, Politics
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UN nuclear watchdog reports

The UN nuclear watchdog is out say that he ran has enriched uranium beyond purity limit set by nuclear deal.
Earlier, VP Pence in a speech did a little sabre rattling saying :
  • Iran should not confuse American restraint with the lack of American resolve
  • US does not seek a war with Iran and is willing to talk but America will not back down
  • US hopes for the best but US military is prepared to protect US interests, personnel in region

Tensions are getting a little higher as Iran presses US.

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