28th Sep - Weekly Links #4170

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EUROPE
  ECONOMY

Euro-Area PMIs continue to fall – Nordea

The Euro-area PMIs dropped much more than expected in September. It seems that the outlook has not bottomed out yet and the slightly less negative August was rather an outlier. More ECB easing is expected in December.

European Confidence Drops to Four-Year Low as Economy Stumbles – BB

Industry leads decline in sentiment, firms worry about demand * Employment outlook deteriorates in both industry and retail

Eurozone: sentiment takes nosedive but there’s a silver lining – ING

The impact of the large drop in sentiment on GDP could be limited as service sector sentiment improved, indicating still limited spillover effects from the manufacturing sector at the end of 3Q

How to Fix Germany’s Ailing Economy – Barron’s

The contraction of Germany’s export markets presents the country with a valuable opportunity to overhaul its economic model by having Germans spend more on themselves.

Scott Sumner: The curse of size – Econlib

Japan and the Eurozone are the two black holes of the modern global economy, pulling the global real interest rate ever lower… The euro didn’t just create a one-size-fits-all problem; Europe’s reliance on interest rates as the only policy instrument gave it a deflationary bias that doesn’t exist in smaller countries that can use exchange rate depreciation, and hence don’t face a zero bound problem.

  POLITICS

Germany’s influence wanes in Merkel’s political twilight – FT

As the chancellor’s final term ticks away, her ability to set the political agenda is diminishing fast

Even Putin Is Now Worried About Climate Change – BB

Russia has dropped its doubts about joining the Paris accords.

Europe Has to Choose a Side in the U.S.-China Rivalry – BB

Beijing has a plan to divide the EU and keep it on the sidelines.

Europe’s Promising New Approach to Its Migration Crisis – BB

A plan to reallocate those rescued at sea is a first step, but the EU should now reform the system as a whole.

Europe Needs to Stop Coddling Iran – BB

Concessions and kind words have only emboldened the regime. Its provocations can no longer be excused.

Time for Europe to Close Ranks Against Iran’s Threats – BB

The attack on the world’s oil supplies demands a unified response.

  EUROPEAN CENTRAL BANK

Are Super Mario's ECB Comrades Seeking Revenge? – BB

The rash of public dissent over quantitative easing may be a flash in the pan, or a sign Christine Lagarde is being gifted a fractious Governing Council

Lautenschläger resigns – Nordea

Ms Lautenschläger resigns from the ECB Executive Board before the end of her term, leaving the Board short experience and even shorter hawks.

The ECB Is Moving Closer to All-Out War – BB

After Sabine Lautenschlaeger’s sudden and unexpected departure, Christine Lagarde’s job is looking harder than ever.

Yanis Varoufakis: New Weapons for the ECB – Project Syndicate

Continued reliance on ECB President Draghi’s weapons will probably succeed in keeping quasi-insolvent states and banks afloat. But it will do so only at the expense of deeper stagnation and uglier political tensions.

I Hesitated Over Taking Mario Draghi’s Job at ECB, Lagarde Says – BB

New president sought advice from other central bankers * ‘I had to say yes,’ ex-IMF chief tells Bloomberg Television

UNITED STATES

Investment slowdown adds to growth worries – ING

Another decline in durable goods orders points to a possible negative reading for US capex in 4Q. This suggests more "insurance" easing from the Federal Reserve will be coming

U.S. Economy Cools on Consumer Spending, Equipment Orders – BB

Bookings for capital goods lean on global growth concerns * August gain in monthly core prices also trails projections

Trump weathers the storms – ING

As Trump faces the biggest test of his presidency so far, we take a fresh look at the chances of his re-election in 2020. In this latest update to our in-depth report, US Politics Watch: Four Scenarios for 2020 and Beyond, we have again teamed up with Oxford Analytica to examine how the race for the White House could play out  

Will Impeachment Affect the Elections? – BB

Whatever the outcome of the House’s inquiry, the electoral effects will probably be small – and possibly nonexistent.

Impeachment May Be Just What the Stock Market Needs – BB

A rally seems likely if the trade war gets put on hold while Trump defends himself.

Trump’s Trade-Warring Won’t Rest for Impeachment – BB

Anybody hoping he’d drop one fight to focus on the other just got bad news.

OTHER

A Deep Dive Into The Global Recession Risk – Danske Bank

A deep dive into the risk of a global recession in light of growing fears about the imminence of such an outcome. Based on our findings, we see about a 30% chance of a global recession over the next two years.

EU’s Designated Trade Chief to Seek 2022 Deal on WTO Overhaul – BB

Phil Hogan vows push as of next year for ‘comprehensive’ pact * Comments made before Sept. 30 confirmation hearing in Brussels

Helicopter money as a policy option – voxeu

With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits.

Risk Parity Part II: The Long-Run View – Two Centuries

The longer history says that Risk Parity is not a magic bullet, but also, perhaps not worse than a 60/40, but only if you stick with it.

When risky zero-sum behaviours prop-up growth – FT

David Levy on what if we’re not investing too little, but too much in a “bubble or nothing” economy that doesn’t generate enough income?

The knock-on consequences of the US-China trade tariffs on global value chains – voxeu

The impact of a simple 25% trade tariff can go far beyond the costs of directly impacted goods. This column shows that seemingly small tariffs can substantially disrupt global value chains, both through the difference between nominal and effective tariff rates and the relative costs of relocation and transhipment, and also because of how the trade dispute is being perceived. If it is seen as a symptom of an enduring geopolitical struggle for global economic dominance, then it could recur.