Saturday, January 21, 2017
Globalisation grinding to a halt?; Trumponomics and markets; India's diverse protests
1 Globalisation grinding to a halt? (Larry Elliott in The Guardian) His speech was like one normally expected of an American president. Countries must resist the temptation to retreat into harbour, the world leader said to a packed and admiring audience, but instead have the courage to swim in the vast ocean of the global market.
This was China’s president, Xi Jinping, in Davos last week, making it clear that he was prepared to fill the vacuum if Donald Trump went ahead with the sort of protectionist policies he had proposed in his election campaign.
The new US president has said he will renegotiate the Nafta free trade agreement between the US, Canada and Mexico and slap duties on imports from countries that don’t play by global trade rules. He also floated the idea of a 35% tariff on goods from Mexico, a 45% tariff on goods from China, and a border tax – which would impose a levy on imports but not exports.
Those attending Davos reassured themselves that Trump would ditch all these proposals once he was in office. But if he doesn’t, the consequences are obvious: the world will be plunged into a trade war that will bring the globalisation of the past quarter of a century to a juddering halt.
And it is not just Trump. Alarm bells were set ringing by Britain’s vote for Brexit, seen as a shout of rage from those who feel that globalisation has brought them precious little. They will clang even louder if Marine Le Pen wins the French presidency in May. One senior diplomat said that if Le Pen pulled off yet another shock result, it would spell the end of the European Union.
The received wisdom for Davos is that this isn’t a tipping point. Globalisation, it was asserted, is really being driven by technological change over which politicians have little control. Supply chains cross borders, often many times over. Consumers care more about whether the goods they can order online will be delivered the next day than where they are sourced from.
Douglas Flint, chairman of HSBC, cited the example of the taxi app Uber as a disruptive technological change that was here to stay. The globalisation optimists may well be proved right. Unravelling the complex web of international links that have been established since the Berlin wall came down at the end of 1980s would be a long and painful process.
2 Trumponomics and markets (Lim Say Boon in Straits Times) Look past the US President Donald Trump's Twitter storms and focus on the big trends to navigate what will likely be extraordinarily volatile market conditions this year. In analysing markets, the three things I focus on are government spending, inflation and US Treasury yields. All of these had already started reversing before the arrival of Mr Trump.
America had already exhausted fiscal austerity before the Trump election. The budget deficit fell from 10 per cent of gross domestic product at the time of the global financial crisis and appeared to have bottomed at around 2 per cent in 2015.
Globally, politicians, economists and central bankers have been arguing for an end to austerity, calling on governments to spend more. Government austerity was offsetting the stimulus from quantitative easing, so the argument went. But, the Obama administration couldn't meaningfully lift government spending as a result of the obstruction by a Republican Congress. Now, the Republicans control both the White House and the Congress. Expect much more government spending, much bigger budget deficits.
Inflation was starting to pick up anyway. It started reversing mid-2015. And, as a result, the 10-year US Treasury rose in mid-2016. Mr Trump did not create these trends, but his mere arrival has already accelerated them. And, his spending will further accelerate them upwards. Near term, the expectation of Trumponomics is bullish US equities.
The bottom line is this: Rates are still very low. The economy is still flush with cash. And, most importantly, the market believes that it is not just about government spending and taxes. It is about a profound, pro-capitalist shift in government that could "ignite animal spirits and attract productive capital".
Sentiment could take US equities higher in the near term, notwithstanding the recent hesitation. Along with that, I am also bullish on US banking stocks. Emerging market and Asia ex-Japan stocks look bearish near term.
3 India’s diverse protests (Soutik Biswas on BBC) India, wrote author VS Naipaul, is a country of a million little mutinies, reeling with rage and revolt. One such mutiny has brewed almost all of this week in southern Tamil Nadu state, where people have been protesting against a ban on a traditional bull-taming contest, known as jallikattu. They say the ban is an attack on their culture and identity.
On Saturday evening, a harried government scrambled to bring in a temporary law that would allow the sport to resume.The embers of this unique protest will continue to flicker because they were not merely about bulls alone. Animal rights activists, who support the ban, say the sport is cruel to animals. Nonsense, say the bull owners and supporters.
The January protests have been spontaneous and not led by any political party. And the protests are no longer just about bulls. There are people angry with the recent currency ban and the shortage of cash that it caused. There is also angst about a controversial judicial order making it compulsory to play the national anthem in theatres and for audiences to stand when it is being played.
There are people who have protested against a nuclear plant in the state and against GM crops. There are irate drought-hit farmers who feel they are being deprived of their share of water from a river that their state shares with neighbouring Karnataka.
"Jallikattu is just a trigger. This huge protest is a manifestation of the trust deficit between Tamil people and the federal government and the judiciary," says historian AR Venkatachalapathy. "Many don't trust Prime Minister Narendra Modi's BJP government's muscular nationalism and recent moves like the currency ban."