1 US economy expands with wage growth (Straits Times)
The US economy continued to expand across most of the country, while wage
growth was described as varying widely, "from flat to strong", a
Federal Reserve report showed on Wednesday.
Seven of the Fed's 12 regional districts
characterised the economy as growing "moderately", at a "modest
pace" or "slightly", according to the central bank's Beige Book,
an economic survey published eight times a year.
Reports on manufacturing were mixed, with the sector
continuing to suffer as a strengthening US dollar and a "weakening global
outlook" took a toll on overseas sales. While recent data on jobs,
consumer spending and inflation have been mostly positive, concerns about
global growth and financial market volatility have reduced expectations for a
rate increase this month.
The Fed tightened policy for first time in almost a
decade in December, lifting the target range of the fed funds rate to 0.25 per
cent to 0.5 per cent. The Beige Book survey showed that while wages generally
increased since the start of the year, the growth was inconsistent.
2 World economy’s 2008 moment (Nouriel Roubini in
The Guardian) Are we back to 2008 and another global financial crisis and
recession? My answer is a straightforward no, but that the recent episode of
global financial market turmoil is likely to be more serious than any period of
volatility and risk-off behaviour since 2009. This is because there are now at
least seven sources of global tail risk, as opposed to the single factors – the
eurozone crisis, the Federal Reserve “taper tantrum,” a possible Greek exit
from the eurozone, and a hard economic landing in China – that have fuelled
volatility in recent years.
First, worries about a hard landing in China and its
likely impact on the stock market and the value of the renminbi have returned
with a vengeance. Second, emerging markets are in serious trouble. They face
global headwinds (China’s slowdown, the end of the commodity super cycle, the
Fed’s exit from zero policy rates). Many are running macro imbalances, such as
twin current account and fiscal deficits, and confront rising inflation and
slowing growth.
Third, the Fed probably erred in exiting its
zero-interest-rate policy in December. Weaker growth, lower inflation (owing to
a further decline in oil prices), and tighter financial conditions now threaten
US growth and inflation expectations. Fourth, many simmering geopolitical risks
are coming to a boil, including the prospect of a long-term cold war between
the Middle East’s regional powers, particularly Sunni Saudi Arabia and Shia
Iran.
Fifth, the decline in oil prices is triggering falls
in US and global equities and spikes in credit spreads. This may now signal
weak global demand as growth in China, emerging markets, and the US slows. Sixth,
global banks are challenged by lower returns, owing to the new regulations since
2008, the rise of financial technology that threatens to disrupt their
already-challenged business models, the growing use of negative policy rates,
rising credit losses on bad assets, and the movement in Europe to “bail in”
banks’ creditors, rather than bail them out with now-restricted state aid.
Finally, the European Union and the eurozone could
be ground zero of global financial turmoil this year. European banks are
challenged. The migration crisis could lead to the end of the Schengen
Agreement, and (together with other domestic troubles) to the end of German chancellor
Angela Merkel’s government.
In the past, tail risks were more occasional and the
policy response was strong and effective, thereby keeping risk-off episodes
brief and restoring asset prices to their previous highs. Today, there are
seven sources of potential global tail risk, and the global economy is moving
from an anemic expansion to a slowdown, which will lead to further reduction in
the price of risky assets (equities, commodities, credit) worldwide.
At the same time, the policies that stopped and
reversed the doom loop between the real economy and risk assets are running out
of steam. The policy mix is suboptimal, owing to excessive reliance on monetary
rather than fiscal policy. Indeed, monetary policies are becoming increasingly
unconventional, reflected in the move by several central banks to negative real
policy rates.
3 New Zealand votes on change of flag (San Francisco
Chronicle) New Zealanders began voting Thursday on whether to change their flag
from a design which features the British Union Jack to one which features a
native silver fern. The preliminary results will be announced on March 24.
Organizers say that deciding the issue by popular
vote represents a world first, and that other countries have changed flags by
revolution, decree or legislation. Opinion polls indicate the nation of 4.7
million people will opt to stick with its current flag, although proponents of
the new design say they have momentum on their side and that more and more
people are embracing a change.
Those favoring change say the current flag is too
similar to Australia's and references a colonial past that it's time to leave
behind. Those opposed to change say the new design is uninspiring or is an
attempt by Prime Minister John Key to create a legacy.
The process of choosing a potential new flag has
been long and sometimes amusing. People submitted more than 10,000 designs,
including bizarre ones like a kiwi bird shooting a green laser beam from its
eye and a stick drawing of a deranged cat.
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