Real Time Economics: Trade, Tariffs, Currencies and the Weaponization of International Finance

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at why Turkey isn’t like other emerging markets, how trade wars are morphing into financial wars, a downward spiral for virtual currencies, America’s love of debt, and whether U.S. workers are finally getting a little bit more productive.  CONTAINMENT The Turkish lira traded higher for the second straight day Wednesday. But Turkey’s currency crisis has led more broadly to fears of contagion in other emerging markets. What causes a panic? If other countries share the same economic weaknesses, if foreign lenders are badly exposed, or if the same external shock hits several nations at once, Mike Bird writes. Turkey might be unique: the country has high inflation, massive external debts and its increasingly autocratic leadership holds unorthodox economic views. President Recep Tayyip Erdogan appointed Continue reading "Real Time Economics: Trade, Tariffs, Currencies and the Weaponization of International Finance"

Real Time Economics: China’s Economy Slows, India’s Rupee Dives and Germany’s GDP Accelerates

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at slower growth in China, more fallout from Turkey’s economic crisis, Germany pulling away from the rest of Europe, and which U.S. manufacturers are driving the sector’s resurgence. SIGNS OF SLOWER GROWTH IN CHINA China’s economy is cooling. Spending on factory machinery, public-works projects and other fixed-asset investments in China’s nonrural areas grew at the slowest pace in nearly two decades. Retail sales also slowed and unemployment ticked up, Liyan Qi, Grace Zhu and Dominique Fong report. The economy is still expanding. But the data suggest further escalation in trade tensions with the U.S. come at a particularly bad time for China. The slowdown in fixed-asset investment reflects Beijing’s campaign to curb risky borrowing by local governments and companies. A government spokesperson said infrastructure investment Continue reading "Real Time Economics: China’s Economy Slows, India’s Rupee Dives and Germany’s GDP Accelerates"

Real Time Economics: Turkish Lira’s Collapse Ripples Through Financial Markets

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at what Turkey’s economic crisis means for other markets, a pivot on U.S. trade policy toward poorer nations, how homeowners are dodging one big source of inflation, and whether we’re running out of construction workers. RECORD LOWS FOR LIRA The Turkish lira hit fresh record lows on Monday, rattling emerging markets around the world. The South African rand fell to a nearly two-year low against the dollar while the Chinese yuan neared its weakest level in more than a year. That’s driving up the cost of servicing dollar-denominated debt in emerging markets at a time when investors were already skittish. Turkey’s central bank pledged to provide “all the liquidity the banks need.” Markets shrugged. And Federal Reserve policy also matters: Rising U.S. interest Continue reading "Real Time Economics: Turkish Lira’s Collapse Ripples Through Financial Markets"

Real Time Economics: Dollar Strengthens as Turkey’s Troubles Rattle Currency Markets

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at a wild ride for currency markets, the economic outlook for the U.S., U.K. and Japan, and one high-class problem for a resurgent manufacturing sector—American factories are running short of parts. CURRENCY CRASH The dollar rose to its strongest point in more than a year while Turkey’s lira, Russia’s ruble and other currencies tumbled. Turkey: The lira has lost more than 20% over the week as international markets soured on the country’s capacity to repay its foreign-currency debts. Concerns about the health of Turkey’s financial system are rippling through global markets, Mike Bird writes.
Russia: U.S. sanctions roiled Russia’s currency and blue-chip stocks. Since 2014, Western sanctions have taken a severe toll on Russia’s economy, wiping out half of the ruble’s value, Continue reading "Real Time Economics: Dollar Strengthens as Turkey’s Troubles Rattle Currency Markets"

Real Time Economics: How the Supreme Court Affects Inflation; the Latest On Tariffs and the Dollar

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at what’s moving inflation, Alcoa bid to let more aluminum into the U.S., supply and demand in food and energy markets, the latest on the dollar’s ascent, and how owning a TV may not be the best thing for your sex life. INFLATION WATCH Inflation is back in the spotlight this week with release of July producer and consumer prices. Everyone wants to know how tariffs are affecting costs for business and consumers. But you know what may be an even bigger deal (for now)? The Supreme Court decision authorizing states to make online retailers collect sales tax. The government estimates the decision will generate $8 billion to $13 billion in additional taxes. Morgan Stanley economists figure that will feed into the Federal Reserve’s preferred Continue reading "Real Time Economics: How the Supreme Court Affects Inflation; the Latest On Tariffs and the Dollar"

Real Time Economics: White House Readies Aid for Farmers Hurt In Trade Battles

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at who’s vulnerable in escalating trade fights, President Trump’s warning ahead of the EU’s White House visit, how some (but not all) manufacturers are shrugging off tariffs, and why China is letting the yuan fall. RESCUE ME The Trump administration is extending $12 billion in emergency aid to farmers as U.S. agriculture feels the impact of escalating trade disputes. The U.S. government plans to provide incremental payments to support prices of some of the hardest-hit commodities, including soybeans, sorghum, cotton, corn, wheat and pork, Vivian Salama and Jacob Bunge report. It’s a short-term solution for a sector that’s taken a series of hits. China, a huge market for U.S. agricultural exports, has applied tariffs on $34 billion worth of U.S. goods, including soybeans and Continue reading "Real Time Economics: White House Readies Aid for Farmers Hurt In Trade Battles"

Real Time Economics: What Do a Falling Yuan, Cheaper Soybeans and Rising Factory Activity Have in Common?

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at China’s plunging currency, suffering in the Farm Belt, a bump in factory activity, a reprieve for Germany’s governing coalition, more misery in strip malls, and happy news for students—a strong labor market is squeezing out unpaid internships. YUAN HITS FRESH LOW There’s more than one way to fight a trade war. China’s yuan slumped to its weakest value against the U.S. dollar in nearly a year. The currency’s drop follows the imposition of tariffs and rising trade tensions between the countries. The Trump administration sees China as a fairly juicy target for tariffs—China exported $505.5 billion in merchandise to the U.S. last year while the U.S. exported $129.9 billion to China. China could run out of stuff to hit with levies Continue reading "Real Time Economics: What Do a Falling Yuan, Cheaper Soybeans and Rising Factory Activity Have in Common?"

Real Time Economics: Americans Are Working Less and Watching TV More

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at how Americans are spending their time, death by overwork in Japan, firming but still fairly subdued inflation, Europe’s economic clout, and China’s dawning realization that it still doesn’t match U.S. technical prowess.  TAKE IT EASY Americans worked less and played more last year. The average amount of time spent daily on relaxation and leisure jumped seven minutes, to three hours and 58 minutes. It’s not that the country is getting lazier. It’s getting older. The elderly—people 65 years or older—are growing as a share of the population and they just don’t work as much. People in their prime working years, however, spent more hours per day on the job than in any year since 2007, Paul Kiernan reports. For those who are relaxing, the most Continue reading "Real Time Economics: Americans Are Working Less and Watching TV More"

Real Time Economics: The U.S. Economy Is Absolutely Roaring—At Least For Now

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. Good morning! Today we look at the torrid pace of U.S. economic growth and why that might not last, new lows for the yuan and the rupee, the latest developments in President Trump’s trade policy, and the paltry personal saving rate of American consumers.  TAKE FIVE The U.S. economy is roaring, at least for now. Macroeconomic Advisers, which runs one of the more sophisticated forecasting models, is tracking a 5.3% growth rate in the second quarter. That would be the fastest pace in almost 15 years. A narrowing trade deficit, tax cuts coupled with more government spending, a resurgent consumer and decent business investment are all supporting what appears to be a strong rebound in growth. The Atlanta Fed’s GDPNow model shows a slightly less robust 4.5% growth Continue reading "Real Time Economics: The U.S. Economy Is Absolutely Roaring—At Least For Now"

Real Time Economics: Trump Warns the EU | Who Writes the Trade Rules? | Inflation and Savings in Focus

This is the web version of the WSJ’s daily economic newsletter. You can sign up here Today in Real Time Economics, the Trump administration warns the EU on trade, nations wonder which trade rules the White House will play by, round six of Nafta talks concludes, and a full week for economic policy and data. TRUMP HINTS AT EU RETALIATION President Donald Trump’s parting shot from Davos was another warning to a major trade partner. “I’ve had a lot of problems with European Union, and it may morph into something very big from that standpoint, from a trade standpoint,” Mr. Trump said in an interview at the World Economic Forum that was broadcast Sunday. The U.S. response would be “very much to their detriment,” he said of the EU. The suggestion of retaliation comes just days after the U.S. imposed tariffs on solar panels and washing machines. Continue reading "Real Time Economics: Trump Warns the EU | Who Writes the Trade Rules? | Inflation and Savings in Focus"

Capital Controls, Not Global Accords, Touted As the New Fix for Currency Volatility

Currency volatility is one of the many symptoms of—and threats to—the global economy’s long malaise. But unlike former days when exchange-rate pressures risked tearing up economies, currency accords are becoming anachronistic in some key policy circles. Capital controls, long anathema in the West, are now touted as the policies du jour. Cross-border restrictions on capital, such as limits on foreign buying or selling of short-term bonds or currencies, could avert potential damage without the need to intervene in exchange rates, proponents argue. The dollar’s surge has accompanied plummeting exchange rates for a host of emerging-market and advanced economies. Several bouts of volatility in foreign-exchange markets—fueled by central banks vying against one another for growth—prompted calls for the Group of 20 largest economies to draft a new, global deal to manage currency values. [wsj-responsive-dynamic-inset id=0] Many analysts and economists called for a modern-day Plaza Accord to tame damaging currency swings and Continue reading "Capital Controls, Not Global Accords, Touted As the New Fix for Currency Volatility"

New U.S. Currency Oversight May Still Leave Manipulators At Large

The U.S. Treasury Department’s latest currency report is supposed to ratchet up pressure on trade partners whose exchange-rate policies are giving exporters a leg up on American firms. But the administration’s new metrics for calling out currency offenders still leave countries enough latitude to avoid triggering censure by Washington. Under the Treasury’s new guidelines, a country has to meet three criteria to start an official sanctions process. Its trade surplus with the U.S. has to be larger than $20 billion. The economy’s surplus of international trade, services and  investment—or “current account”—must be larger than 3% of that country’s gross domestic product. And the country has to have been intervening in the foreign-exchange market to the tune of 2% of GDP over a year. Fred Bergsten, a senior fellow at the Peterson Institute for International Economics and longtime advocate for stronger action by the U.S., Continue reading "New U.S. Currency Oversight May Still Leave Manipulators At Large"

Palamon and Corsair to buy Currencies Direct

Palamon Capital Partners and Corsair Capital have agreed to acquire Currencies Direct, a provider of foreign exchange solutions. The value of the transaction is over 200 million pounds. The deal is expected to be completed before the end of the year. PRESS RELEASE Palamon Capital Partners, a pan-European growth investor, and Corsair Capital, a leading private equity investor in global financial services, today announced an agreement to jointly acquire control of Currencies Direct (“The Company”), a leading specialist provider of foreign exchange (“FX”) and international payment solutions to private and corporate clients. The transaction value exceeds £200 million.
The acquisition is structured so that Currencies Direct management will increase its ownership position in the company and will also include continuing equity participation by the firm’s principal founder, Mayank B Patel OBE, who will become Honorary President. Currencies Direct’s Private FX segment provides foreign exchange services to more than 150,000
Continue reading "Palamon and Corsair to buy Currencies Direct"

Currency Sanctions in the Trade Bill: A Risk or a Ruse?

President Barack Obama speaks as Japanese Prime Minister Shinzo Abe at a press conference in Tokyo last year. The U.S. and Japan are the two largest economies in the 12-nation Trans-Pacific Partnership trade talks.  
Would sanctioning currency manipulators really put U.S. monetary policy at risk? Maybe. Maybe not. The risk that tough anti-manipulation measures could impede Federal Reserve policies is one of the main arguments the Obama administration is using to warn lawmakers against including binding penalties against countries that devalue their exchange rates in key trade legislation. Lawmakers pushing for tough rules inside a trade bill say the argument is erroneous. “Those who oppose currency disciplines continue to raise this false argument,” Rep. Sander Levin, (D., Mich.), the ranking member on the House committee responsible for trade policy and a chief advocate for tougher currency sanctions, said in a speech Continue reading "Currency Sanctions in the Trade Bill: A Risk or a Ruse?"

Barcelona Party Pledges to Print Money

Brixton Pound notes.
One of the main contenders in this weekend’s local elections in Barcelona, Spain’s second-largest city, recently made an eye-catching pledge: To create a new currency for the metropolitan area. There have been a number of experiments with alternative currency in Europe, North America and elsewhere, including in the London neighborhood of Brixton with its flashy paper bills featuring local celebrities such as singer David Bowie and NBA Miami Heat player Luol Deng. But Barcelona—with a metropolitan area of some 3.2 million people—would be the largest city council in the West to trial such a scheme if it were to go ahead, according to specialists in alternative currency. Behind the proposal is Barcelona In Common, a coalition of left-wing parties that pollsters say could win the election. Under its plan, which is intended to boost small and medium-sized businesses, the city council would pay part
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Swiss Central Bank Says Negative Rates Won’t Become ‘New Normal’

Swiss National Bank Chairman Thomas Jordan said negative interest rates are necessary to curb demand for the overvalued Swiss franc.
BERN—Negative interest rates introduced by the Swiss central bank are a necessary tool to curb demand for the country’s overvalued currency but won’t become a permanent fixture of the economy, Swiss National Bank President Thomas Jordan said Friday. Mr. Jordan said low interest rates around the world had created an extremely difficult environment for the Swiss economy, a situation that is exacerbated by a Swiss franc that is “significantly overvalued.” The situation required the central bank to begin applying negative interest rates in January, a move designed to curb demand for the franc, he said. Mr. Jordan said negative interest rates will play “a very important role” until upward pressure on the franc eases and the global economy recovers further. He made the comments in a prepared text Continue reading "Swiss Central Bank Says Negative Rates Won’t Become ‘New Normal’"

Mexico’s Finance Minister Says Emerging Markets Concerned About Currency Turbulence

Mexican Finance Minister Luis Videgaray said on Saturday that he wants an orderly appreciation of the dollar.
Finance officials from the world’s largest emerging-market nations are growing increasingly worried that currency turbulence could hurt their economies as the dollar strengthens, Mexican finance minister Luis Videgaray said on Saturday. “The most recurring concern is the U.S. dollar appreciation,” Mr. Videgaray said in an interview, as global finance ministers and central bankers met in Washington to discuss threats to the world economy. Emerging economies are watching the Federal Reserve nervously as the U.S. central bank plans its first rate increase in nearly a decade. “We are not that concerned about the particular level of the dollar,” he said. “For us, the key issue is that changes in the prices of the dollar vis-à-vis the peso—the currency rate—happen in an orderly way.” Investors are plowing their cash into the U.S. currency as the American economy strengthens and the Fed gets set to raise interest rates. Combined with slowing growth in emerging markets and easy-money policies in the eurozone and Japan that depreciate the euro and the yen, demand for the dollar has fueled one of its strongest surges in decades. Amid those shifts in the global economy, emerging markets are worried about three types of threats. First, if the Fed surprises markets by raising rates earlier or faster than expected, investors could move en masse to adjust their portfolios across the broad swaths of assets and markets. Second, many firms and governments have bulked up on dollar-denominated debt amid an era of cheap borrowing costs even though their revenues are often in local currencies. And third, if investor rush to the exits at the same time it could spark major volatility in bond, equity and currency values. For Mexico, the stronger dollar has a mixed impact for the economy, Mr. Videgaray said. For the country’s exporters, it boosts demand for their products. For retail and food-processing industries that rely heavily on imports for their businesses, it can hit their profit margins. “Our most important concern is that these adjustments do not happen in a market that lacks liquidity, and so therefore just a few trades can affect the exchange rate significantly,” the minister said. Still, Mexico has several lines of defense. The government has tried to overhaul its economy to make it more competitive, including opening up its oil industry to international investment, as a way to encourage investors and boost economic growth potential. Analysts say, however, much work is left to be done on that front. The central bank has also built up hefty currency reserves it can use to rein in volatile moves in the exchange rate. The country also has secured a precautionary credit line from the International Monetary Fund it can use if turmoil strikes. Just having that credit line is seen as a reassurance to investors. But other emerging markets don’t have the same protections, and unlike Mexico, their economic fate isn’t  tied Continue reading "Mexico’s Finance Minister Says Emerging Markets Concerned About Currency Turbulence"

U.S. Tells Its Top Trading Partners: Step Up to Boost the Global Economy

The Treasury Department released its semiannual currency report Thursday.
  The U.S. Treasury Department on Thursday offered its twice-yearly advice to Europe, Japan, China and other major trading partners, warning they’re not doing enough to support global economic growth. The semi-annual currency report comes ahead of the International Monetary Fund‘s spring meetings, where finance leaders are expected to discuss the global outlook and U.S. Treasury Secretary Jacob Lew will encourage new measures to spur domestic demand. Here are excerpts from the report: The U.S. Economy Although GDP growth appears to have slowed in the first quarter of 2015, in part reflecting the temporary effects of severe winter weather, an array of economic indicators suggests that the underlying momentum of the recovery remains intact and growth is expected to remain strong through the end of this year. The Global Economy In contrast to solid U.S. performance, global economic outcomes have been disappointing and remain of concern. Not only has global growth failed to accelerate, but there is worry that the composition of global output is increasingly unbalanced. Weak global growth importantly reflects an insufficiently comprehensive mix of macroeconomic policies in some key countries, which leaves substantial scope for efforts to support domestic demand. Policy Prescriptions Policymakers need to use all levers, including fiscal stimulus where fiscal space exists, to complement monetary policy accommodation. In conjunction, many countries also need to implement structural reforms to help boost potential growth and address persistent stagnation. Balanced approaches to macroeconomic policy are particularly needed in large surplus countries, notably in Germany, China, Japan, and Korea. Europe The key priority for the euro area is to bolster domestic demand growth. In the face of ongoing disinflation, the European Central Bank (ECB) has taken forceful steps to support growth and combat downward price pressures. Complementing these monetary measures with supportive national fiscal policies, and appropriate structural reforms, would help deliver the strongest boost to domestic demand. Singling out Germany Stronger demand growth in Germany is absolutely essential, as it has been persistently weak. Germany’s relatively low unemployment and recovery to pre-crisis output has relied heavily on increased exports outside the euro area. Japan Going forward the government needs to deploy all three policy levers – fiscal, monetary, and structural – to secure a balanced and durable recovery and ensure monetary stimulus is appropriately supporting the growth of domestic demand. Overreliance on monetary policy without appropriate support from fiscal policy and structural reforms will put Japan’s recovery and escape from deflation at risk and could generate negative spillovers. China China’s currency needs to appreciate to bring about the necessary internal rebalancing toward household consumption that is a key goal of the government’s reform plans and necessary for sustained, balanced global growth. While China has made real progress, with its real effective exchange rate appreciating meaningfully over the past six months, these factors indicate an RMB exchange rate that remains significantly undervalued. South Korea After reducing their presence in the foreign Continue reading "U.S. Tells Its Top Trading Partners: Step Up to Boost the Global Economy"

Yellen Upbeat on Foreign Central Bank Stimulus for U.S., Despite Dollar Impact

NEW YORK–Federal Reserve Chairwoman Janet Yellen said Friday that overseas central bank stimulus is mixed but ultimately positive for the U.S. economy. Mr. Yellen, speaking to a conference at the Federal Reserve Bank of San Francisco, said in response to an audience question that it’s true that stimulus in the European Union and Japan were helping lead to a stronger dollar that will weigh on total U.S. growth by lowering American exports. But she cautioned more was at play. With the foreign central bank actions, “there are a number of channels of influence.” They might push the dollar higher, but “to the extent that these policies succeed in improving the outlook in our trade partners, faster growth abroad” is a plus for the U.S., Ms. Yellen said. The actions leading to a stronger dollar are also pushing down long-term borrowing costs for the U.S. These rates are “also a positive” for the outlook, she said. That said, Ms. Yellen observed “clearly we do have to take into account the global economic environment, and the impact it has on our own outlook.” And what’s happening is “mixed,” she said. Some central bankers have been signaling that further dollar gains could cause them to think differently about the outlook for Fed policy. Most officials expect to raise interest rates this year, and Ms. Yellen affirmed the likelihood of that in her formal remarks Friday. But too much vigor in the dollar coupled with its impact on markets may complicate that analysis. In remarks Thursday, Atlanta Fed Chief Dennis Lockhart said that given overseas policy actions, “I think we have to be a little concerned the longer rates will rise in concert” with the increases in short-term rates Fed officials believe are likely, he said. Ms. Yellen also said after her speech the Fed considered implementing negative interest rates in the past, having lowered short-term rates to near-zero levels. She said that officials concluded there was little benefit to following that path. Citing negative rates in parts of Europe, Ms. Yellen said “I’m surprised that there hasn’t been more pick up in the demand for cash” in affected countries.

–Jim Carlton in San Francisco contributed to this post.

Grand Central: U.S. Growth Revisions Pose Challenge for the Fed

The Wall Street Journal’s Daily Report on Global Central Banks for Thursday, March 26, 2015: Sign up for the newsletter: HILSENRATH’S TAKE: U.S. GROWTH REVISIONS POSE CHALLENGE FOR THE FED
Bloomberg News
The U.S. central bank is getting whipsawed this week by conflicting signals on the U.S. economic outlook. On Tuesday the Labor Department reported the U.S. consumer price index firmed in February, rising 0.2% in February after three straight monthly declines. That, and an increase in the index excluding food and energy, were a sign slack in the economy is diminishing, as Fed officials project.

On Wednesday, a grim economic report led a wave of Wall Street firms to downgrade their estimates of first quarter economic growth, a sign slack in the economy actually might be building again. Bank of American reduced its estimate of growth for the quarter to near zero, while Morgan Stanley, Barclays, J.P. Morgan and Macroeconomic Advisers also cut their projections. The precipitating event was a Commerce Department report that orders by U.S. firms for durable goods declined in February. My colleague Kate Davidson covered both developments. Bad winter weather might be a transitory factor holding the economy back. If that’s the case, there’s no reason to worry. Output contracted in the first quarter of 2014 and then bounced back in the second. The worry is that other strains, including the fallout on energy sector investment from tumbling oil prices, might be having deeper and longer-lasting effects on output growth than Fed officials anticipated. It’s a good thing they have until June to make sense of the cross-currents. That’s when they have said they’ll consider whether interest rate increases from near-zero are warranted. -By Jon Hilsenrath MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD Major Central Banks Agree on Guidelines for Forex Market. The world’s major central banks have agreed to a new set of guidelines for the foreign-exchange market, creating a road map for how individual countries’ regulators should protect client information. The document, which is expected to be made public this week, is a response to revelations last year that traders at large banks were sharing information about their clients’ positions. Representatives from the foreign-exchange committees of the Federal Reserve Bank of New York, the Bank of Japan and the Bank of England among others have signed off on an eight-page document that explicitly bans traders from sharing client identities and information and disclosing data that could allow someone to deduce that information.
Fed’s Bullard: Risks of Keeping U.S. Policy Rates at Zero Too Long ‘May be Substantial.’  Current low levels of U.S. inflation are likely temporary
Continue reading "Grand Central: U.S. Growth Revisions Pose Challenge for the Fed"