Economy

August is typically a quiet month for government bond sales in Europe as nations take a summer break in their issuance calendars — but not this year. Scarred by the coronavirus pandemic, Germany, France and Spain will sell up to €22bn of bonds over the next two weeks, according to strategists at UniCredit, with Italy potentially adding to that with an auction of its own.
That is a similar pace of sales to the second half of July, but at a time when investors are receiving no cash flows from maturing bonds due to the relative lack of sales in past years.
“A lot of countries have a mid-August slot in their calendar for auctions, which they typically don’t use, but these are exceptional circumstances,” said ING strategist Antoine Bouvet.

The extra supply hitting the market could halt the recent rally in European bond prices that last week pushed Italian yields to their lowest since March and Germany’s to their lowest since early May.
However, fears over a potential resurgence of coronavirus and renewed measures to limit its spread are likely to suppress yields for now by driving investors into relatively safe assets such as the government debt on sale this month, according to Mr Bouvet. 
“The market is focused on the trajectory of the pandemic, and the news flow isn’t particularly encouraging,” he said. “It’s pretty hard to see fixed income markets repricing as long as that’s the case.” Tommy Stubbington
How strong is the US consumer?
Investors seeking greater insight into the health of the US consumer will receive two important data points on Friday: the retail sales report for July and, just a few hours later, the preliminary figures for the University of Michigan’s index of consumer sentiment for August.
Economic activity had begun to stabilise at the start of summer as US states and cities started to slowly emerge from coronavirus lockdowns. But the emergence of virus hotspots across the nation since has forced many local officials to reverse their reopening plans.
Policymakers have grown increasingly worried about these developments and what they mean for the economic outlook. At his most recent press conference after the monetary policy meeting in late July, Federal Reserve chairman Jay Powell explicitly tied the economy’s trajectory to that of the virus, underscoring the importance of containing its spread.

“The path of the economy is going to depend to a very high extent on the course of the virus and on the measures that we take to keep it in check,” he said. “That is just a very fundamental fact about our economy right now. The two things are not in conflict.”
Disappointing figures on Friday — which appear likely in light of the virus’s resurgence — are likely to heap additional pressure on the Fed to act soon, turning investors’ focus to the upcoming meeting in mid-September. Colby Smith
How close is China’s economy to a full recovery?
As the rest of the world grapples with the coronavirus pandemic, investors already captivated by soaring share prices in Shanghai and Shenzhen will receive two key readings this week about how close China’s economy is to a full recovery.
Economists surveyed by Bloomberg predict the official consumer price index, out on Monday, will show year-on-year inflation of about 2.6 per cent for July. This is in stark contrast to a jump above 5 per cent when the prices on consumer goods leapt after lockdowns were imposed across the country early this year.
But coronavirus is not the only outbreak in China. Rolling bouts of African swine fever are still killing herds and driving the price of pork higher, while speculators have bid up corn futures 20 per cent since the outbreak went nationwide in February. High prices for both key commodities could help push the inflation gauge above expectations.
Retail sales figures, out on Friday, are expected to paint a mixed picture. The consensus forecast is for a rise of 0.2 per cent in July — ending a six-month run of contraction. However, economists at Bank of America have pencilled in a year-on-year drop of 0.5 per cent, warning that “severe floods in central and southern China might have suppressed local consumption”.
Together with the threat of further disruption to trade from the US during election season, a big miss for retail sales could give policymakers in Beijing reason to reconsider their reluctance to deploy more serious stimulus measures during the pandemic fallout. Hudson Lockett More

From making beds in Hong Kong to building multi-star resorts in Dubai, migrant workers help underpin two economies. They provide cheap labour for the rich world and vital income for poorer countries. Remittances last year overtook foreign direct investment as the biggest source of external financing to these nations, equal to one-tenth of economic output in the Philippines and 16 per cent in Jamaica.
Then coronavirus broke out. The World Bank reckons that the pandemic will scythe one-fifth, or more than $100bn, off global remittances. Workers will send home $445bn this year. East Asia and the Pacific, the biggest recipient of remittances, face the biggest cut from overseas workers downing tools.
Broad-brush figures conceal personal hardship — remittances are a lifeline for many extended families — and local anomalies. Remittances to Mexico were up 10 per cent year on year in the six months to June at a record $19bn. Yet for the Philippines, with 9m or so workers overseas, including doctors employed by the UK’s National Health Service, remittances fell by a fifth in the year to May.

More than 200,000 Filipino workers have gone home. Government officials say the total could go as high as 700,000. An academic paper penned in April estimated that 300,000 to 400,000 may have been laid off or given pay cuts. 

Cancelled or reduced monthly remittances have many impacts, apart from less income for the financial institutions that send toilers’ money around the world, often for nosebleed commissions. At the macro level, lower hard-currency income dents national balance sheets. Only falling imports have stopped the drop from punching a hole in the current account of the Philippines.
There are human costs and benefits too. Some workers will inadvertently bring home the coronavirus. Others will relish the unexpected reunion with loved ones, including nannies who normally spend more time with employers’ children than their own.
At the micro level, less money coming in means less consumption. A National Migration Survey in 2018 reckoned that about 12 per cent of all Filipino households have, or have had, a member working overseas. Without that income, families will spend less on education, construction and food. In good times, remittances illustrate the trickle-down effect with textbook precision. Coronavirus shows how quickly that can go into reverse.
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Japanese Foreign Minister Toshimitsu Motegi is currently in negotiations with British Trade Minister Liz Truss in London.British Trade Minister Lizz Truss said in a statement that they “have reached consensus on the major elements of a deal,” and both have announced that they will agree on the principles of a trade deal by the end of August.However, despite reassurances that the two countries had by and large reached an agreement, auto tariffs and agricultural products have proven to be a sticking point in the negotiations.Japan had hoped to lift tariffs on auto and auto parts earlier than in the current trade deal between the EU and Japan, which will phase out import tariffs on Japanese vehicles by 2026.”Japan agreed to phasing auto tariffs on Japanese vehicles out in 2026 in line with the EU trade deal, despite asking to hasten the timing,” Nikkei reported on Sunday.Britain, on the other hand, is hoping to secure better terms on agriculture, Financial Times reporter George Parker tweeted on Friday.”UK-Japan trade talks close to agreement but @trussliz said by Brits to be holding out on agricultural access,” he said, referring to Truss’s Twitter handle.Britain, which left the European Union in January, is seeking to clinch a trade agreement with Japan based on the 2019 EU-Japan agreement by the end of the year, when Britain’s no-change transition arrangement with the EU will expire.The Japanese Trade Ministry and Foreign Ministry did not immediately respond to Reuters’ request for comment. More

South Africa’s central bank governor has defended its response to the coronavirus economic downturn in Africa’s most industrialised nation in the face of growing calls from politicians and trade unionists to deepen its rate cuts and buy up more government bonds.
South Africa, which has recorded more than half a million infections to date, is facing its biggest downturn in 90 years this year as industry slowly reopens from restrictions.
The lockdown has devastated an already moribund economy, reeling from persistent power cuts and a lack of investment even before the pandemic. The governing African National Congress of President Cyril Ramaphosa wants the bank to take a more direct role in stimulating growth.

But the South African Reserve Bank “has been the most aggressive” bar few other central banks in developing economies, Lesetja Kganyago told the Financial Times in an interview. SARB has cut its benchmark rate by 300 basis points to 3.5 per cent over the course of this year, with the latest downward shift on July 24, as infections and a strict lockdown have battered South Africa’s economy.

Of course, there could always be central bankers who . . . could overlook their responsibilities in terms of the constitution, but this one is not about to

Mr Kganyago said the policy rate, now at its lowest in nearly half a century, was also now negative in real terms versus where inflation is expected to be in the next year, showing the bank’s “substantial” response.
Inflation recently fell below the bank’s target range of 3 to 6 per cent, yet analysts anticipate just one more 25bp rate cut this year.
“I challenge anybody who’d dare say that the SARB has not done enough, and I would say by what measure — because when you see the measures that the SARB has taken, we can compare it to our peers,” Mr Kganyago said. The bank “has room to respond” if inflation is persistently under target, he added.
“Of course, there could always be central bankers who are pliable, who could overlook their responsibilities in terms of the constitution, but this one is not about to,” he said.

In its plan for South Africa’s post-pandemic economy unveiled last month, the ruling ANC said that the central bank “must be better co-ordinated with fiscal policy” and should pursue “pro-growth and pro-investment” monetary policies, in what was seen as pressure on the bank to do more to stimulate the economy. David Masondo, the deputy finance minister, has said he is not opposed to greater bond buying by the bank. Meanwhile, trade unions have called for the bank to intervene more in the economy.
The pandemic has shown “the role the monetary authorities can play in injecting resources into the economy and in using bond purchases to stabilise capital markets and put downward pressure on longer-term interest rates”, the ANC’s plan said.

There have been calls from unions and some economists for the bank to adopt quantitative easing — buying government bonds directly to stimulate the economy. Its limited purchases to date targeted disruptions in the South African bond market that emerged in March at the height of the pandemic’s global financial turmoil. The bank only had to buy about R30bn ($1.7bn) of bonds between March and June because the signal that it was prepared to make purchases helped ease market conditions.
Full quantitative easing was not necessary as South African rates remain above the point at which other central banks have generally had to adopt QE to get their economies moving, Mr Kganyago said.
But the SARB is under growing pressure from parts of the ANC to directly fund the government, or accept high inflation in order to reduce the real value of its debts, as the public finances, already bloated by years of bailouts for inefficient state companies, are set to deteriorate further in coming years.
In a reflection of the strain on South Africa’s borrowing costs, the country last month took a $4.3bn low-cost loan from the IMF to help fund its response to the pandemic.
At about 16 per cent of GDP, this year’s budget deficit is expected to be larger than South Africa’s annual pool of domestic savings, burdening local appetite for government bonds.
At the same time it has become harder to attract foreign investors to South Africa’s sovereign debt market after the country lost its last investment-grade credit rating earlier this year. Foreign ownership of local-currency debt is about 30 per cent, the lowest in almost a decade, according to data.

Video: Covid-19 and ‘Locust-19’ threaten perfect storm for Africa | FT Interview

As a result, “South Africa is at risk of fiscal dominance” or pressure on the bank to find ways to ease the load on the government’s finances, Mr Kganyago said. But there are strong institutional safeguards to prevent that, including the central bank’s independence and its constitutional mandate to deliver stable prices, he added.
Even if a pliant central bank did agree to stoke inflation for fiscal reasons, it would not help the government with its finances, Mr Kganyago said. Hundreds of billions of rand of bonds of state debts are linked to inflation, and pay out more if prices rise. “Trying to inflate the debt away is not an option,” he said. More

“We’ve stopped losing jobs,” Lopez Obrador said in a video posted on YouTube. “So far in August almost 15,000 new jobs have been created.”Citing data from Mexico’s Social Security Institute, Lopez Obrador said 1.1 million formal jobs were lost between March and July, with the nadir in April with some 555,000 losses. That slowed to 3,900 formal job losses in July, he said.The bulk of Mexicans work in the informal economy, and they have borne the brunt of job losses triggered by the pandemic’s effects on Latin America’s second-second largest economy.The INEGI national statistics agency has said some 12 million jobs in total were lost between March and May, much of that stemming from temporary work suspensions caused by lockdown measures to prevent the spread of coronavirus.Nearly 5 million people returned to work in June, INEGI says, as the economy has reopened.”The informal economy is also picking up. There’s more activity on the street,” said Lopez Obrador.The president said that consumption is also picking up, thanks to social programs that benefit the poor and remittances, the bulk of which are sent home by the millions of Mexicans living in the United States.He forecast that remittances could reach $40 billion in 2020, which would be a major boon for the Mexican economy which contracted by a historic 17.3% in the second quarter from the previous three months.Remittances rose in June to $3.54 billion, the second highest level since records began in 1995. More

BUENOS AIRES (Reuters) – Argentina will start talks with the International Monetary Fund in the coming weeks aimed at clinching a new program to replace a defunct $57 billion standby lending deal from two years ago, a top IMF official told Reuters on Saturday.In 2018, Argentina received the biggest lending package in IMF history in an ill-fated bid to halt a slide in the local peso currency. About $44 billion of the allotted cash has been paid out so far.”Within the next few weeks Argentina plans to formally request the initiation of conversations for a new program that would succeed the derailed and canceled 2018 program,” said Sergio Chodos, IMF executive director for the Southern Cone.”There is no stringent deadline for conclusion of the upcoming talks because the calendar of maturities of principal owed to the fund does not start until Sept. 21, 2021. So the discussion process can be well thought out,” Chodos said in a telephone interview.New lending from the IMF will not be part of the upcoming accord, he added. The government has had to renegotiate about $65 billion in bonds as the country sinks into what is expected to be a 12.5% recession this year.”We stand ready to support Argentina, including engaging with the authorities on a new IMF-supported program when the authorities so desire. However, at this stage no request has been made,” a fund spokesman said in an emailed statement.The government is talking with undecided bondholders about supporting a sovereign debt restructuring deal it reached several days ago with key creditors groups. The government had said it would finalize the bond restructuring before setting out to revamp its IMF agreement.Argentina’s previous government ran into a cash crunch two years ago after President Mauricio Macri’s austerity drive, which included cuts to energy subsidies, jacked up electricity bills paid by businesses. Vendors increased consumer prices to help cover their rising energy costs, fueling inflation.The foreign direct investment that Macri promised would be attracted by his market-friendly policies never materialized.Macri was voted out of office last year and succeeded by Peronist Alberto Fernandez, who has vowed not to impose fiscal austerity while the country grapples with the fallout from the coronavirus pandemic. More

Neel Kashkari, president of the Minneapolis Federal Reserve, in an interview on February 17, 2016.
David Orrell | CNBC 

The U.S. economy needs an even more stringent shutdown than the last time if it’s going to defeat the coronavirus, Minneapolis Federal Reserve President Neel Kashkari said.
In a Friday New York Times op-ed he authored with Michael T. Osterholm, a professor and director of the Center for Infectious Disease Research and Policy at the University of Minnesota, Kashkari argues that the government should issue a shelter-in-place order “for everyone but the truly essential workers” for up to six weeks.

March’s lockdown, issued as the coronavirus became a pandemic, was not sufficiently stringent and has led to the U.S. lagging other stricter nations when it has come to containing Covid-19, they said. The result “could make what we have experienced so far seem like just a warm-up to a greater catastrophe.”
“To be effective, the lockdown has to be as comprehensive and strict as possible,” Kashkari and Osterholm wrote. “If we aren’t willing to take this action, millions more cases with many more deaths are likely before a vaccine might be available. In addition, the economic recovery will be much slower, with far more business failures and high unemployment for the next year or two.”
During the initial lockdown, the shuttering of American businesses led to the loss of at least 20 million jobs, only about half of which have been recovered during the restart. Congress stepped in with rescue funding that has swelled the national debt by $3 trillion to $26.5 trillion, and Kashkari’s Fed also has expanded its balance sheet by nearly $3 trillion by lending and providing liquidity through various vehicles.

The containment measures also crushed broader economic activity, sending GDP down 32.9% in the second quarter as calculated over a full-year’s period.
Kashkari and Osterholm said that the efforts still weren’t strict enough as the U.S. is still seeing 17 new cases per 100,000 people a day, with more than 160,000 total deaths attributed to the virus. 

“Simply, we gave up on our lockdown efforts to control virus transmission well before the virus was under control,” they wrote. 
Despite the economic damage done during the initial shutdown, including layoffs, thousands of failed businesses and mental health and education issues, the authors say another lockdown would pave the way for a stronger recovery.
“If we do this aggressively, the testing and tracing capacity we’ve built will support reopening the economy as other countries have done, allow children to go back to school and citizens to vote in person in November. All of this will lead to a stronger, faster economic recovery, moving people from unemployment to work,” they said. 
“There is no trade-off between health and the economy,” they added. “Both require aggressively getting control of the virus. History will judge us harshly if we miss this life- and economy-saving opportunity to get it right this time.” More

Qualcomm is lobbying to sell chips to Huawei that the Chinese company would include in its 5G phones, according to the report, citing a presentation by Qualcomm.With these restrictions, the U.S. has handed Qualcomm’s foreign competitors a market worth as much as $8 billion annually, the report said.Qualcomm did not immediately reply to a Reuters request for comment.The company resolved a licensing dispute with Huawei last month, which will pay Qualcomm a catch-up payment of $1.8 billion in the fiscal fourth quarter. More