Godiva is launching a new product:" Brussels Fudge". Watch taxpayers bail out Italian banks - totally contrary to the new banking directive of earlier this year. Short European banks even more.

BRUSSEL’S FUDGE IN THE WAKE OF RENZI’S TAXPAYER BAILOUT PLAN?

• Basically, I think that Merkel wants to fudge the issue by allowing tax payers’ money to recapitalize the banks.
  • Perhaps there is space for Godiva making FUDGE  in the Belgian market?
• Then there is the precedent that Renzi, with his 30-something years of wisdom, is putting forth: regulatory exit.
  • This means that on top of political exit by the British, we now have the Italians promoting regulatory exit – exit away from the Bank Recovery and Resolution Directive, which was implemented at the start of this year. Instead, Renzi wants to thumb his nose at the rules and do his own thing ( in order to help his popularity…)

HONG KONG

The contraction in activity in Hong Kong’s Private sector has worsened in June. The Nikkei purchasing managers’ index for Hong Kong’s private business activity came in at 45.5 in June, compared to 47.2 in May. That’s the 16thconsecutive month of contraction. New orders hit their lowest level since August 2015.

In some separate data from Midland Realty, Hong Kong total property sales plunged 39.2% in value in the first half of the year. That’s the worst six-month number recorded since it started surveying prices in 1991.

Nomura has downgraded its outlook on Hong Kong for 2016 and 2017 in the wake of the Brexit decision. It expects the territory’s economy to fall into a recession this year as financial transaction volumes reduce significantly and China's economy continues to slow. Hong Kong's 2017 GDP growth forecast was also cut to 0.5% from 1.5%.

"Hong Kong is the most vulnerable economy in the region to the fallout of the Brexit vote," Nomura said.

• Hong Kong is the water skier off the back of the Chinese speed boat
• This means that we are 85% dependent on China’s Economic Time®. 
• China’s is characterised by an
  • Excess demand for money (in the important private sector) and an
  • Excess supply  of goods (in the important public sector)
  • Our HK Economic Clock® is ticking to China’s tune: any walk around the empty halls of Pacific Place attest to this observation.
  • At the same time, 15% of our Economic Time® is of our own making: the leaderless government means that there is dampened  “can do” here in Hong Kong at present.
  • China did not ask us to
    • Kill English
    • Allow the land lords to strangle the tenants with avariciously high rents
    • Stop the importation of doctors, who are sorely needed esp in the public sector
    • Allow the cartels to strangle us even more
    • Build a multi-billion dollar white elephants like the Zhuhai bridge or the West Kowloon Cultural Hub
    • Thus, exacerbate our already hairy glaring income divide
    • So, instead of blaming China, why not clean up our own front door, first – thereby showing China the way?

US

Minutes from the Fed’s June monetary policy meeting which decided to leave US interest rates on hold, were released overnight. Meeting before the UK had voted to leave the EU, Fed officials said the UK referendum had the potential to generate market turbulence that may adversely affect the domestic economy. They were also concerned about the strength of the US labour market following May’s disappointing jobs numbers.

The US service sector expanded for the 77th consecutive month, and outperforming expectations in June. The ISM’s index of non-manufacturing activity jumped to 56.6 in June, up from 52.9 in May. That’s the best reading in 7 months. Business activity rose a strong 4.4 points, while employment improved by 3 points.

Meanwhile the US trade deficit has expanded more than expected. The US Commerce Department said exports decreased by 0.2%, while imports grew by 1.6% sending the trade deficit 10% higher to $ $41.1bn in May. The deficit with China rose by 19.4% to $29bn - the largest deficit since November 2015.

• Relative to her past Economic Time®, America’s now is characterized by an
  • Excess demand for money (the Fed has stopped loosening) and
  • An Excess demand for goods (retail sales are one H%^& of a lot better than in the doomy dumps of the 2007/8 recession.
  • However, recent data point to continued frailty in the economy
  • This is but one reason why the Fed won’t raise rates
  • The other key one has to be that someone in Washington has told Yellen not to raise rates until Clinton is elected; that way, the Democrats’ engineered economic “recovery” won’t be threatened
    • And we all know Bill Clinton’s admonishment about what determines the fate of presidential candidates: “it’s the economy, stupid”
    • This latter point is the only way that I can explain Yellen’s prevarication and kicking the can down the road by using foreign economic “happenings” – BREXIT, etc – to justify not raising rates domestically….

BOND YIELDS

 Around the world bond yields have tumbled to record lows.

10 year bonds in the Bloomberg Global Developed Sovereign Bond Index, yield a record-low 0.40 percent.

The US 10 year Treasury bond yield touched a record low of 1.318% and the 30 year Treasury bond also hit a new all-time low.

10-year gilt yields hit a new low of 0.729 per cent.

There were more new record lows for government bond yields in Europe, with the return on German 10-year notes sinking to minus 0.2%.

France's 10-year bond yield fell as low as 0.10% and the Dutch equivalent remained close to zero.

The yield on the 10-year Japanese government bond hit a record low of minus 0.262 per cent.

The yield on the 20-year Japanese government bond turned negative for the first time on Wednesday as investors sought safe havens as the Brexit fallout continues. The 20-year yield fell to minus 0.005%.

The yield on the 10-year Australian bond, hit a record low 1.849%.

Yields are low because:

• people are scared: they want the safe haven of bankrupt national government debt…
• demand-pull inflation as we know it is dead, and
• governments have engineered “nothing” short rates
• But low yields are man-made!
• This means that they don’t reflect the natural Economic Clock®, the business cycle
• This falsity, in turn, means that low yields cannot boost consumption. On the contrary: low interest rates force people to save MORE, especially in an ageing society. So they spend less. And less spending means less investment by corporates…..

You can listen to th RTHK podcast here. Enjoy!