Spring wheat field in north-central North Dakota, U.S., July 25, 2018. REUTERS/Julie Ingwersen
March 16, 2019
By Lisandra Paraguassu
WASHINGTON (Reuters) – Brazil is considering granting an import quota of 750,000 tonnes of U.S. wheat per year without tariffs in exchange for other trade concessions, according to a Brazilian official with knowledge of the negotiations ahead of President Jair Bolsonaro’s visit to Washington.
That is about 10 percent of Brazilian annual wheat imports and is part of a two-decades-old commitment to import 750,000 tonnes of wheat a year free of tariffs that Brazil made during the World Trade Organization Uruguay Round of talks on agriculture but never adopted.
Bolsonaro is scheduled to arrive in Washington on Sunday and meet with U.S. President Donald Trump at the White House on Tuesday.
Farm state senators have asked that wheat sales be on the agenda, in a letter to Trump seen by Reuters. They estimate such a quota would increase U.S. wheat sales by between $75 million and $120 million a year.
Brazil buys most of its imported wheat from Argentina, and some for Uruguay and Paraguay, without paying tariffs because they are all members of the Mercosur South American customs’ union. Imports from other countries pay a 10 percent tariff.
The Brazilian official, who asked not to be named so he could speak freely, said the wheat quota could be sealed during a meeting between Brazil’s Agriculture Minister Teresa Cristina Dias and U.S. Secretary of Agriculture Sonny Perdue on Tuesday.
In return, the Brazilian government is hoping to see movement toward the reopening of the U.S. market to fresh beef imports from Brazil that were shut down after a meat-packing industry scandal involving bribed inspectors.
Brazil is also seeking U.S. market access for its exports of limes that are facing phytosanitary certification hurdles.
The world’s largest sugar producer also wants tariff-free access to the U.S. market. But Washington is not expected to budge on that issue until Brazil lifts a tariff it slapped on ethanol imports when they exceed 150 million liters in a quarter.
That is a major demand by U.S. biofuels producers who are the main suppliers of ethanol imported by Brazil.
(Reporting by Lisandra Paraguassu; Writing by Anthony Boadle; editing by Bill Berkrot)
FILE PHOTO: Sudan’s President Omar al-Bashir delivers a speech at the Presidential Palace in Khartoum, Sudan February 22, 2019. REUTERS/Mohamed Nureldin Abdallah/File Photo
March 16, 2019
CAIRO (Reuters) – Sudan has signed deals for loans worth $300 million with regional Arab funds, authorities said on Saturday, as the government struggles to cope with an economic crisis and nearly three months of street protests.
The finance ministry agreed a $230 million loan with the Abu Dhabi-based Arab Monetary Fund to support the balance of payments, the ministry said in a statement.
A deal for a second loan worth $70 million was signed with the Arab Trade Financing Program, whose shareholders include the Arab Monetary Fund and which is also based in Abu Dhabi, according to a statement from Sudan’s presidency.
The deals were signed as President Omar al-Bashir and other officials including the central bank governor met Arab Monetary Fund Director General Abdulrahman Al Hamidy in the capital, Khartoum.
A worsening economic crisis in Sudan triggered frequent demonstrations across the country since Dec. 19 in which protesters have called for an end to Bashir’s three-decade rule.
The government has expanded the money supply, pushing inflation to more than 70 percent before the end of last year before it slowed to under 50 percent in January and February, according to official figures.
Diplomats say the government has struggled to raise new funds from abroad as it tries to keep the economy afloat.
(Reporting by Khalid Abdelaziz, Writing by Aidan Lewis, Editing by William Maclean)
Headquarters of the People’s Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS/Jason Lee
March 16, 2019
SHANGHAI (Reuters) – China’s central bank said on Saturday it will gradually set up a system of rules to regulate fintech, and will fully utilize the technology to optimize the flow of credit and reduce financing costs for businesses.
The People’s Bank of China (PBOC), in a statement on its website, also said it would enhance the application of new technologies in regulation, and improve the ability to prevent risks.
(Reporting by Samuel Shen and Josh Horwitz, editing by Richard Pullin)
FILE PHOTO: U.S. Secretary of the Interior Ryan Zinke arrives at the U.S. Capitol prior to the service for former President George H. W. Bush in Washington, DC, USA, 03 December 2018. Shawn Thew/Pool via REUTERS
March 15, 2019
By Nichola Groom
(Reuters) – The Trump administration is likely to open up portions of the Atlantic to oil and gas drilling despite opposition from East Coast states, a U.S. Interior Department official suggested in remarks at a recent energy industry conference, a recording of which was reviewed by Reuters.
The comments come as the administration of President Donald Trump prepares to release a new five-year drilling plan proposal for federal waters that could vastly expand available acreage, part of its broader agenda to maximize U.S. oil, gas and coal production.
Interior’s assistant secretary for land and minerals management, Joe Balash, said in his speech that the department had been working to permit seismic testing off the East Coast – noting that the department would not have undertaken the work if the acreage was to be kept off limits.
“I will tell you that we wouldn’t work really, really hard to get seismic permits out if it was an area that wasn’t going to be available,” Balash said, according to a transcript of the recorded remarks made at the International Association of Geophysical Contractors annual conference in Houston on Feb. 20.
Responding to a question from the audience following his prepared remarks, Balash said the proposal would likely “be drifting into the second quarter of this year,” as the department had underestimated the amount of time the proposal would take.
His comments were first reported by The Guardian.
States from New England to Florida have expressed strong opposition to offshore drilling and have asked the Trump administration to be exempted from its offshore drilling plan, arguing the risk of an oil spill far outweighs the promised jobs and revenues.
The Interior Department’s Bureau of Ocean Energy Management is currently reviewing nine geological and geophysical permit applications to allow seismic testing in areas from Delaware to Florida, according to documents on its website. Several states have sued to halt the effort.
Seismic testing, a precursor to drilling, uses air gun blasts to map out what resources lie beneath the ocean – a practice that research suggests hurts whales and other marine mammals.
When asked about Balash’s comments at the energy conference, Interior spokesman Russell Newell said the five-year drilling proposal had not yet been completed.
“As Assistant Secretary Balash made clear and as BOEM Acting Director Walter Cruikshank stated last week in Congressional testimony, BOEM is still working on the proposed program documents,” Newell said in an emailed statement.
“As these documents are yet to be finalized, no final decisions have been made.”
BOEM last year issued a draft proposal to open up over 90 percent of coastal waters in the outer continental shelf to oil and gas drilling, including areas like the Atlantic coast and California, and said it would accept feedback before offering a final proposal this year.
Shortly after announcing the initial proposal, former Interior Secretary Ryan Zinke said he had agreed to exempt Florida. He also told officials from at least six states that they would be “pleased” or “happy” with the final plan, that the waters off their coastlines do not have enough resources to make investment worthwhile, or both.
It is unclear whether those plans have been altered since Zinke resigned in December. Trump nominated Zinke’s deputy, David Bernhardt, a former lobbyist, to replace him.
BOEM Director Walter Cruickshank last week said opposition to offshore drilling was just one factor BOEM would consider in drafting the revised proposal.
(Additional reporting by Valerie Volcovici, editing by G Crosse)
Brazil’s President Jair Bolsonaro listens to Paraguay’s President Mario Abdo during a meeting at the Planalto Palace in Brasilia, Brazil March 12, 2019. REUTERS/Ueslei Marcelino
March 15, 2019
By Marcela Ayres
BRASILIA (Reuters) – Brazil does not expect the U.S. government to announce support for its bid to join a club of the world’s advanced economies when its President Jair Bolsonaro visits Washington next week, a senior member of his economic team told Reuters on Friday.
Brazil, the world’s eighth-largest economy, applied in 2017 to join the Organization for Economic Cooperation and Development (OECD), a forum of three dozen advanced economies that includes Mexico, Chile and Colombia.
The Brazilian official, who requested anonymity to speak freely, said that Brazil hopes to show Washington it has become a fully fledged market economy and win U.S. backing to enter the OECD in a process that could take another three years.
“The purpose of this visit is in part to show that Brazil is a market economy that is free of ideology and wants to use the United States as the model for its development,” the Brazilian official said. “This is linked to joining the OECD, which is important for our country’s future.”
OECD membership is seen as a stamp of approval that would boost investor confidence in a country’s government and economy.
Yet Brazil’s OECD bid has run into broad U.S. opposition to expanding multilateral bodies such as the OECD, another person with knowledge of the matter said.
Bolsonaro will meet with President Donald Trump at the White House on Tuesday and OECD membership will be on the agenda, the sources said.
The Brazilian government had hoped that the ideological affinity between Trump and Bolsonaro, who has been called the “tropical Trump” for the aggressive tone of his new right-wing government, would help to win U.S. support for the OECD bid.
However, the Office of the U.S. Trade Representative (USTR) is seen as the biggest source of resistance to the idea. Trump has also already announced his support for Argentina joining the OECD, hurting the chances of another such endorsement.
(Reporting by Marcela Ayres; Additional reporting and writing by Anthony Boadle; Editing by James Dalgleish)
FILE PHOTO – Hernan Rincon, executive president and CEO of AVIANCA Holdings S.A., speaks during a new aircraft presentation ceremony at Monsignor Oscar Arnulfo Romero International Airport in San Luis Talpa, El Salvador May 7, 2018. REUTERS/Jose Cabezas
March 15, 2019
SAO PAULO (Reuters) – Colombian airline Avianca Holdings canceled an order of 17 Airbus A320 Neo aircraft and delayed deliveries on 35 others, according to a securities filing on Friday.
Avianca said this would reduce its financial commitments between 2020 and 2022 by $2.6 billion. The Colombian carrier has shifted its strategy to focus on profitability from growth.
The airline is following in the footstep of regional rival LATAM Airlines, which in recent months has said it was reducing future fleet commitments by $2.2 billion.
Avianca, United Continental Holdings Inc and Panama’s Copa Holdings announced late last year that they would form an alliance to try to expand their reach in the Latin American market, excluding Brazil.
Avianca is separate from Avianca Brasil, a struggling carrier that filed for bankruptcy in December, although they share owners. Up until last month, the two airlines had been carrying out due diligence for a potential merger, but that process has been suspended.
(Reporting by Marcelo Rochabrun; Editing by Christian Plumb and Grant McCool)
Life after death for asset inflation: this is what happens when “speculative fever” remains high even after monetary inflation has paused.
This may well have been the situation in global markets during 2019 so far. But history and principle suggest that life after death in this monetary sense is short.
Readers may find it odd to be talking about a pause in monetary inflation at a time when the Fed has cancelled programmed rate rises and the ECB has embarked (March 7) on yet further “radical” policy moves. Moreover, the “core” US inflation rate (as measured by PCE) is still at virtually 2 per cent year-on-year.
Yet we know from past cycles that in the early stages of recession many market participants — and, crucially, central banks — mistakenly view a stall in rate rises or actual rate cuts as stimulatory. Later with the benefit of hindsight these policy moves turn out to be insufficient to prevent a tightening of monetary conditions already in process but unrecognized.
Even had monetary conditions been easing rather than tightening, it is highly dubious whether this difference would have meant the powerful momentum behind the business cycle moving into its recession phase would have lessened substantially.
(As a footnote here: under a gold standard regime there is no claim that monetary conditions will evolve perfectly in line with contracyclical fine-tuning. Both in principle and fact monetary conditions could tighten there at first as recessionary forces gathered. Under sound money, however, contracyclical forces would emerge strongly into the recession as directed by the invisible hand.)
Under a fiat money regime, monetary tightening can occur in the transition of a business cycle into recession, despite the opposite intention of the central bank policy-makers, due to endogenous factors such as an undetected increase in demand for money or a fall in the underlying “money multipliers.” Quite possibly, what the markets first celebrated as a seeming Fed put eventually turns out to be a sick joke.
Like the policy of the central bank, the reported trend of officially measured inflation in goods and services market is a notoriously poor indicator of turning points in monetary inflation.
Fluctuations up and down in goods prices sometimes have nothing to do with monetary inflation. Students of Austrian school economics know that under sound money, prices would fluctuate in both directions for sustained periods. For example, there could have been a sustained period of falling prices under the influence of accelerated digitalization and globalization.
In the late stage of a business cycle expansion an upward drift of prices can form under the hypothesized sound money conditions and this may be happening in the present even as monetary inflation has waned.
Labor market normalization (return to balance) goes along with some pick-up of wages and productivity growth may coincidentally slow (perhaps related to a breather in the hectic pace of new technology application. In this cycle we could argue that the pace of globalization has slowed somewhat (of especially as the US confronts Chinese abuse of free market order in international economy). Maybe also the pace of digitalization has slackened (the “online” revolution surely does not proceed forever at the same hectic pace).
In sum, a late cycle rise of prices could be a false positive test of monetary inflation.
Moreover, just as official inflation data can be a lagging indicator of monetary inflation, so it is with the continuing symptoms of monetary inflation in the asset markets. Indeed, a Fed put may have inflamed those symptoms.
In searching for the presence (or not) of asset inflation we look for evidence of irrational forces under such banners as “search for yield” or “positive feedback loops.” A key focus is the carry trade, especially in currencies and credit. Alongside, we focus on the spread speculative narratives about which investors would be highly skeptical in sober rational mood (but monetary inflation erodes such skepticism). These characteristics can all outlive for some time monetary inflation, especially if the Fed has sought to exercise a put.
Even so, in this late stage the discerning monetary analysts can detect some tiredness about the narrative-telling. The chickens are coming home to roost from growing cumulative mal-investment – translating into pre-tax earnings peaking or going into reverse. Some disturbing counter narratives have emerged concerning the one-time hot speculations.
In many past business cycles, analysts in search of when the expansion and asset inflation are set to wane look for areas of unsustainable rises for key economic aggregates. In the last cycle, one example was residential construction in the USA. In other cycles it has been business spending overall — which would be broadly in line with Austrian School literature on the business cycle focusing on how monetary inflation distorts the relative price of capital goods in terms of consumer goods.
In this cycle though there has been no obvious such overall unsustainability at the level of broad economic aggregate in the US economy. In the emerging market economies by contrast, including China, that would be an easier case to make. In Europe or Japan, we could talk of the unsustainability of export sector growth based on emerging market bubble and their own manipulated cheap currencies.
Back to the US, the lack of obvious non-sustainability in a broad spending aggregate does not mean there is no recession danger — just the searchers for this must dig deeper. In particular, the overall mal-investment might be even greater than usual but concentrated in a few sectors where the speculative narratives have been intense — whether Silicon Valley or shale oil and gas. Mal-investment only shows up in many cases once the asset inflation and cycle expansion have come to an end.
In talking about main economic aggregates, the case can be made across the advanced economies that consumer spending might be in for a big fall once households realize that all was fantasy. Specifically, the high returns during the asset inflation from risk-assets including booming carry trades while they lasted made them tolerant of the manipulated low and widely negative returns on safe assets. Once gone, alarm sets in.
Even so there is a paradox to address about the present cycle. How has it been that such monetary wildness has gone along with apparent real economic moderation (no obvious unsustainable rise of broad economic aggregates)?
Fearing the Long Term
A plausible part-answer is that everyone and their dog know what the Federal Reserve and other central banks have been up to and all along have feared the eventual crash and great recession. Hence there has been a tendency for business owners to eschew long-gestation investments and focus on generating high returns via financial engineering instead (camouflaged leverage, momentum trading, carry trades).
Another part answer is the growth of monopoly power across the US economy as described by the star firm literature or more specifically in accounts of Big Tech. Specifically, the star firm theorists tell us that there is something about present technological advance — most likely its high specificity of investment much of which is intangible to the given firm with little scope for selling in a secondary market — which retards the percolation of progress beyond.
Monopolists respond often more sluggishly in their capital spending plans to manipulations down in the cost of capital than would firms in a competitive setting. Limiting supply is the name of their game.
Whatever the causes for subdued business capital investment overall in this cycle and more broadly for “real economic moderation” there is every reason to expect the real economic moderation which has coexisted with a wild monetary environment to end in immoderation. The illusion of economic moderation has fanned the carry trade into high yield credit and more broadly equity market valuations – and so the fall will be all the greater.
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FILE PHOTO: Imported automobiles are parked in a lot at the port of Newark New Jersey, U.S., February 19, 2019. REUTERS/Eduardo Munoz
March 15, 2019
WASHINGTON (Reuters) – President Donald Trump’s trade battles cost the U.S. economy $7.8 billion in lost gross domestic product in 2018, a study by a team of economists at leading American universities published this week showed.
Authors of the paper said they analyzed the short-run impact of Trump’s actions and found that imports from targeted countries declined 31.5 percent while targeted U.S. exports fell by 11 percent. They also found that annual consumer and producer losses from higher costs of imports totaled $68.8 billion.
“After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss was $7.8 billion,” or 0.04 percent of GDP, the researchers said.
The study was authored by a team of economists at the University of California Berkeley, Columbia University, Yale University and University of California at Los Angeles (UCLA) and published by the National Bureau of Economic research. https://www.nber.org/papers/w25638
Having dubbed himself the “tariff man,” Trump pledged on both the campaign trail and as president to reduce the trade deficit by shutting out unfairly traded imports and renegotiating free trade agreements.
Trump has pursued a protectionist trade agenda to shield U.S. manufacturing. Washington and Beijing have been locked in a tit-for-tat tariff battle for months as imposing unilateral tariffs to combat, and Trump has imposed tariffs that have roiled the European Union and other major trading partners.
The authors said while U.S. tariffs favored sectors located in “politically competitive” counties, the retaliatory tariffs imposed on U.S. goods have offset the benefits to these areas.
“We find that tradeable-sector workers in heavily Republican counties were the most negatively affected by the trade war,” the researchers said.
(Reporting by Humeyra Pamuk)
FILE PHOTO: A J.P. Morgan logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith
March 15, 2019
NEW YORK (Reuters) – J.P. Morgan analysts said on Friday what banks charge each other to borrow dollars for three months will likely end 2019 at about 2.65 percent, which was below their prior forecast of 2.90 percent, due to expectations the Federal Reserve would not raise rates this year.
Earlier Friday, the London interbank offered rate (LIBOR) for three-month dollars was fixed at 2.62525 percent, the highest level since Feb. 27.
(Reporting by Richard Leong; Editing by Chizu Nomiyama)