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Sunday, August 18

18th Aug - Weekly links #4159

Trade within eurozone falls at fastest pace in six years FT
Slowdown raises fears US-China dispute is hurting exporters

Euro area industrial production fallsEurostat
-1.6% from month ago, -2.6% from year ago

Bershidsky: Moscow Protests Are Getting More Dangerous – for PutinBB
Now, the unrest is directed against disproportionate police violence, and that makes it more dangerous for the Kremlin.

Lost in Trump’s China Week Was a Postcard to Europe: You’re NextBB
Decision to be made within months on possible auto tariffs * Revisiting grievances before next weekend’s G-7 summit

Ashworth: Switzerland Is Held Captive By Its Big NeighborBB
With the ECB set to cut rates, the Swiss will have little choice but to go even deeper into negative territory. The SNB is a price-taker, not a price-maker.

ECB: Mitigating side effects - gauging the tiering premiumDanske Bank
An ECB tiering system is widely expected to be announced at the ECB September meeting. However, the exact design and ultimately the market impact are difficult to assess. In this document, we lay out our views on how a tiering system could be constructed.

Italy: Back to polls in Q4 2019?Pictet
Recent developments in Italy’s political landscape have increased the probability of early elections in Q4 2019, but the situation is not so straightforward.

Cowen: Italy’s Economic Rot Is Europe’s Problem, TooBB
Two decades of nearly nonexistent growth is hurting both the country and the continent.

Germany: On the brink of recessionNordea
The German economy contracted in Q2 and the weak sentiment data suggest negative growth continued in Q3 as well, which would put the German economy in a recession. The outlook for the German economy is worrying.

Germany heading for recessionABN AMRO
German GDP fell in 2019Q2 and Q3 numbers point to a contraction as well * The industry recession is intensifying and domestic demand is slowing down * We expect the German economy to be weaker than the eurozone, which should be close to stagnation in 2019H2 but not in recession

The case for fiscal stimulus strengthens in GermanyPictet
German real GDP shrank in the second half of the year, reinforcing our view of a significant ECB action in September.

Bershidsky: Germany Needs a Recession to Start SpendingBB
The pressure on Angela Merkel to give up the zero deficit policy is mounting as the economy weakens, but she will wait before turning on the spending taps.

Offshoring and the decline in US manufacturing employmentvoxeu
What has caused the rapid decline in US manufacturing employment in recent decades? This column uses novel data to investigate the role of US multinationals and finds that they were a key driver behind the job losses. Insights from a theoretical framework imply that a reduction in the costs of foreign sourcing led firms to increase offshoring, and to shed labour.

US: The self-fulfilling threat of an inverted yield curveING
The market is worried about a recession. For now we don't see it, but there is a chance the fear becomes self-fulfilling

Authers: The Market Finally Has Its Inversion. Now What? BB
The latest move in the bond market is unlike anything investors have seen, and not in a good way.

New Fed call: Five more from FedDanske Bank
We now expect five more 25bp cuts, taking the target range to 0.75-1.00% at the March meeting. We do not anticipate the Fed will pre-commit to more easing but that it will stick to its current ad hoc approach. If the Fed really wants to reflate the economy and markets, it may need to commit more to easing and/or cut more and faster eventually.

Duy: The Federal Reserve Can Conquer the Yield Curve BB
Unlike in the past, the central bank hasn’t waited to see signs of a recession in the data before lowering interest rates.

FX: what usually happens after US curve inversions?Nordea
The US 2/10 curve has recently traded briefly in inverted territory. While the past is not necessarily a perfect guide for the future, we looked into the details on what usually happens in the G10 and EM spaces following an inversion of the US curve.

New monetary policies for new challenges Pictet
As central banks try (yet again) to bolster faltering growth and inflation, it is important to grasp how the ‘style’ and aims of monetary policy-making have changed over time and how they need to evolve in the future.

Monetary policy – automatic for the people?Jussi Lindgren

Chappatta: The Bond Markets Are Begging for Infrastructure SpendingBB
Government-financed public works projects could end the plague of negative-yielding debt.

International business cycle co-movement in the global production networkvoxeu
The international co-movements of business cycles is a key determinant of trade and monetary policy, but the ways in which it is affected by technology, TFP, and trade openness are not fully understood. This column shows how such co-movements are affected by trade linkages and technology. It finds that non-technology shocks contribute more to international co-movement than TFP shocks, and that transmission plays a notable but small part in co-movements.