Trade War Effects on Foreign Exchange

The US-China trade war has been one of the more influential economic events over the past 2 years and has played a big part in defining President Trump's performance as leader of the US. Peterson Institute for International Economics recently reviewed how his tariffs have impacted exchange rates in the dollar and renminbi markets. The analysis begins with the theoretical assumption that tariffs should lead to appreciation in the imposer's currency while the currency of the imposed will depreciation. Of course, the trade war included retaliatory tariffs, so the dynamics have been analyzed both ways.
The main theoretical framework is built with the initial assumption that the imposing country is at full employment. After the tariff is imposed, inflationary forces are increased by demand for labor and domestic currency. With a central bank that wants to keep monitor inflation, interest rates increase and the domestic currency appreciates. The model applies in the opposite way as …

How Transparency Transformed the Fed

Some of the most anticipated events in the financial world are the 8 meetings that the US Federal Reserve has to form monetary policy that affects the economies of the world. The press releases are widely read by just about every member of the finance industry and beyond. The transparency of the Fed wasn't always the norm and has caused FOMC participants to be more wary with their commentary.

The talkative Fed wasn't a phenomenon until Alan Greenspan's tenure during the 1990s. During his time, press conferences and economic indicator estimates were released, and in 1993, it was decided that FOMC private meeting notes would be released with a five-year lag. The change in the publicity of the FOMC minutes has allowed for a comparison to be made between commentary that was given with the knowledge it is going public and without. The Central Bank of Sweden used the FOMC minutes to analyze the tone and informativeness of the commentators in FOMC minutes between 1993-2012 in a w…

Update on the Belt and Road Initiative

In April 2019, China's brought together representatives of the Belt and Road Initiative (BRI) economies to revamp the project that is now about six years old. President Xi Jinping continued to assert his willingness and desire to cooperate with his neighbors and even beyond. The Economist Corporate Network (ECN) reported on recent updates with interviews from nine key individuals affected by the BRI.

At the time of the meeting, over 130 countries have signed BRI agreements with China including some all the way in Central America. Although, that doesn't fully encompass the economic span of the project as Western countries, like the UK,  who haven't committed are considering "third-country co-operation" agreements in an effort to maintain a good relationship with the network which is looking massive already.

Indeed, the BRI includes economies with the largest prospects for growth. In total, the core BRI countries include "50 percent of the world's populati…

FactSet Earnings Insight: 2019 Second Quarter Earnings in Review

The earnings season in the second quarter of 2019 came to end after trade and macroeconomic worries had given plenty of investors reason to fear the reports. FactSet Earnings Insights provides some review of the results in Q2 from its FactSet Earnings Insight data sheet. The figures focus on the S&P 500 constituents but paint a good picture of how the sectors fared in the earnings seasons.

Based on the data, S&P 500 companies fared relatively well compared to estimates in the second quarter on the bottom line. 75 percent of companies reported earnings above estimates and just 17 came in below. Technology continued to impress being on the higher end of the sector spectrum as 81 percent report earnings above estimates. Utilities was the only sector that was pessimistic with at least half reporting earnings below estimates. The Energy sector fought off volatile commodity prices to report earnings above estimates 72 percent of the time.

Beats were less likely on the top line thoug…

The Chinese Market Will Never Be the Same

In 2018, President Donald Trump set out on a path to improve the US economy by challenging the US-China trade relationship which he determined was unfairly tilted against the US. Over the past year, tariffs were implemented by both governments as pressure on unresolved trade negotiations for a new deal built. As of the latest round of tariffs, the US will add an additional 10 percent tariff on all Chinese imports after there was no resolution following the previous round (tariff of 25 percent on $200 billion of Chinese exports to the United States and tariffs of up to 25 percent on $60 billion of US exports to the China).

As expected, the aggressive behavior from both sides have created rifts in the various markets included in US-China trade. As of June, Chinese imports of US goods fell 31.4 percent to just $9.4 billion while US imports of Chinese goods fell 7.8 percent to $39.3 billion. The steep decline in US exports to China has caused US companies that previously did business with…

An Aging, Shrinking World Population

The United Nations “World Population Prospects 2019” is the 26th edition of the publication combing over 1,600 population censuses and result from 2,700 representative sample surveys. The current edition of this report confirms several things about global demographics. The world population is growing but at a slower rate than usual mostly caused by decreasing fertility rates and an aging population.

Since fertility rates are expected to be a major factor, countries with higher than average fertility are expected to make the largest additions to the population. The UN expects over half of population growth will be caused by 9 countries: the Democratic Republic of the Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, the United Republic of Tanzania, and the United States of America. On the other hand, the UN sees the populations of 55 countries decreasing by 1 percent or more by 2050. The following countries are expected to see decreases of 20 percent or higher: Bulgaria, Lat…

Oxford Energy: LNG Trends in the Second Quarter

In June 2019, the Oxford Institute for Energy Studies (Oxford Energy) released its "Quarterly Gas Review" reporting on recent trends in the market. Here are some of the highlights of its report:

Low LNG Spot Prices Force Rethink of Oil Indexing

Since the end of 2018, the LNG market has seen an increase in capacity inflating the global supply leading to weakening in the Asian spot price (Anea) and the European spot price (TTF). In addition to the spot prices, Oxford Energy has seen its measure of "LNG tightness," the spread between US Gulf Coast LNG FOB (AGC) price and the Henry Hub (HH) price, drop. Oxford Energy also saw Asian spot prices fall below Europe prices, "something never before seen" in their data from June 2016 to today. Coupled with high Brent crude oil prices, the trends are forcing buyers to reconsider their contracts chained to the price of oil. Oxford Energy thinks that this could "strengthen the [LNG Japan/Korea Marker (Platts)] ind…