Global Services Trade Also Set To Slow, Says WTO Rising tariffs have contributed to a decline in cross-border sales of goods, contributing to a weakening of global economic growth as factory output declines
The World Trade Organization on Monday launched a new Services Trade Barometer that aims to flag changes in volumes over coming months. The measure fell to 98.4 in June, below the long-term average of 100 and down from a recent peak of 103.1 a year earlier.
According to the WTO, that points to “a loss of momentum in world services trade,” although it added that cross-border sales of services were likely to hold up better than sales of goods. The WTO said trade in services had already slowed sharply in the first three months of 2019, recording an increase of 3.6% from a year earlier, down from 5.1% in the final three months of 2018.
The kinds of services covered by the measure range from air travel to information and communications technology.
Earlier this month, the International Air Transport Association said passenger demand eased significantly in July.
(…) a setback to the services sector could have an impact on economic growth in the U.S., where it accounts for 80% of economic activity, a larger share than the 70% of output that it accounts for in the European Union. (…)
The full Services Trade Barometer is available here.
Note that the WTO will update this barometer twice a year. Markit’s is monthly:
The J.P.Morgan Global Services Business Activity Index –a composite index produced by J.P.Morgan and IHS in association with ISM and IFPSM – fell to a three month low of 51.8 in August, down from 52.5 in July, one of the worst readings posted over the past three years.
The slowdown in output growth was most evident in the US, which saw its rate of expansion ease to the weakest during the current 42-month sequence of increases. The UK, India and Brazil also saw growth slow, while Australia was the only nation to register a contraction. Stronger expansions were seen in the euro area, China, Japan and Russia.
Incoming new business rose at the weakest pace in over three years during August. This partly reflected a mild decrease in the level of new export work received, including contractions in the US, euro area and Brazil.
The business, consumer and financial services sectors all registered slower rates of expansion in output and new business during August. The slowdowns in activity and new work were especially marked in financial services. (…)
BUY CANADA!
Security of supplies has suddenly resurfaced as NBF points out.
(…) Not only does the scale of the oil resource in Canada rank as one of the largest in the world, the resource development standards, quality and supply security, should position our country as a preferred producer. (…) Canada currently supplies the U.S. with close to 90% of its net imports of crude oil, but at a discounted price. WCS has the potential to become a global pricing benchmark, but that will require new infrastructure to ship this strategic commodity to global markets.
Last August in the National Post:
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A modest proposal for the Trump administration to buy Canada Greenland is for small-timers. Trump should make an offer for an even bigger, richer, more strategic and more passive-aggressive Arctic ally
(…) If the 45th president really wants to think big, he should make an offer for an even bigger, richer, more strategic and more passive-aggressive Arctic ally. I speak, of course, of Canada.
Here’s my proposal: The Trump administration offers Canada the following deal:
$20 trillion in cold, hard cash.
A one-for-one exchange of the loonie for the greenback.
Each of the 13 Canadian provinces and territories would be admitted as a state in the union, with representation in the House and the Senate.
While we’re admitting new states, D.C. and Puerto Rico get statehood as well, bringing the United States to 65 states in total. (…)
The Trump administration could secure multiple wins with this deal. In acquiring the second-largest country by geographic size, Trump would cement his name in the history books. He would also engage in some bank-shot expansionary monetary policy. See, if the $20 trillion was just printed, Trump would have discovered a way to inject massive amounts of liquidity into the system at the exact moment when markets have been getting jittery. He would not acknowledge this, but the reduction of trade barriers between the two countries would be another boost for economic growth.
(…) For Democrats, the electoral math is simple. The center of political gravity in most of Canada’s provinces is to the left of the median U.S. state. In acquiring Canada (as well as turning D.C. and Puerto Rico into states), the Democrats would enhance their ability to control Congress for the next several decades. For Republicans, the political logic is even more simple: Trump wants to buy Canada. Also, most Canadians are as white as Republicans. Stephen Miller is probably salivating over the racial possibilities!
Would a purchase of Canada be free of problems? Gosh, no. The boost in hockey coverage would be annoying, and I suppose the rising anti-Americanism in our neighbor to the north might be a bit of a problem. Also, I hear territories are not for sale.
It will require a great dealmaker to close this sale in as swift a manner as possible. Go for it, President Trump. Show us the art of the deal, eh?
LIQUIDITY VS VOLATILITY
Richard Bernstein (RBAdvisors.com) is a smart strategist:
(…) The primary factor influencing financial market volatility is liquidity. (…) investors often simply can’t buy at the market low because they don’t have the liquidity to do so. Chart 1 shows the relationship between the effects of Federal Reserve policy (depicted here as the slope of the yield curve) and equity market volatility. Although not a perfect relationship, there has historically been a strong link between liquidity and equity market implied volatility. The effects of monetary policy on financial market volatility can have significant lags because the Fed can’t force financial institutions to start or to stop lending. (…)
The gradual tightening of monetary policy has yet to work through the financial sector, but the inverted yield curve is suggesting that volatility could be on the rise. This is not simply a US event. Chart 2 shows the proportion of global yield curves that are flat and inverted (i.e., 10-year to 2-year spread less than or equal to 100 bp). The sharp rise in this indicator suggests that global liquidity has been drying up, which implies that global financial markets are likely to become more volatile. (…)
We have been gradually increasing our fixed-income and gold allocations as the table above might suggest one should and have been lowering the beta to our equity benchmark as well. Investors often forget that equity market sensitivity is a function of both the equity weight and the beta to the equity benchmark when assets other than equities are included (i.e., equity-sensitive asset classes such as credit). (…)
SENTIMENT WATCH
Goldman Sachs’ Sentiment Indicator shows that aggregate equity positioning is 1.2 standard deviations above average. GS adds that “in the eight weeks after our SI exceeds +1.0 (“stretched” positioning), the S&P 500 usually declines but the signal is weaker than when positioning is light. Accelerating economic growth has also generally offset the headwinds to stock prices from stretched positioning during the past 10 years.”
