Picture Credit: Julio Cortez/AP
by Brunello Rosa
1 June 2020
In the last few days, the streets of Minneapolis and other major US cities have been filled by people protesting the treatment of George Floyd, who died while in policy custody. The facts are sadly well known, and the fact that the police officer Derek Chauvin has been arrested did not placate the ire of the African-American community or the wider population. Protests have become violent in the last couple of days, as they have in previous similar occasions, most notably in Los Angeles in 1992, after a trial jury acquitted LAPD officers’ accused usage of excessive force in the arrest and beating of Rodney King.
So, this type of episode is unfortunately not new, and it will likely happen again in future. What makes this episode peculiar and particularly noticeable in this period is that it is happening as social tensions are clearly on the rise, with a number of protests being staged in various parts of the US against the lockdown measures introduced in many states. The most worrying of these took place outside the Michigan Capitol building in Lansing on April 30, when a number of protesters showed up equipped with firearms.
This is quite concerning, considering this is a year in which one of the most tense presidential elections in US history will take place. The election will be tense not just because of the logistical difficulties resulting from Coronavirus, or from the fact that the margin between the two contenders is likely to be small, but also because there is widespread concern that if Trump were to lose, he might not accept the result – even were it to come in the form of a verdict from the Supreme Court – and will instead refuse to leave the White House.
These episodes are taking place in the US, but other parts of the world are not immune from this same sort of situation. Protests against lockdown measures are happening in many different countries: the UK, Germany, Australia, Belgium, Italy, Poland, etc. At this stage, most of these protests are motivated by social anger against the restrictions that have been placed on personal liberties. In some cases, they have also been motivated by dissatisfaction regarding the economic impact of the measures being adopted to stop the spread of the virus. But even if the lockdown measures were to be alleviated in coming months, social tension might not ebb.
In fact, the real economic impact of the anti-Covid measures will be felt in the autumn. In Q2, there was an immediate impact deriving from the closure of economic activities. But those companies that could remain open used these months to process the orders arrived until the end of Q1 2020. But in Q3/Q4 2020 it will be clearer how many businesses have in fact survived, and how many new orders will have arrived.
The risk is that the collapse in economic activity of Q1/Q2 will have a long-lasting impact on economic systems, with serious repercussions on employment and, therefore, on social cohesion. This is the reason why governments around the world are trying to gradually re-open their economic systems, and why support in the form of government policy will need to remain abundant for the foreseeable future.
by Brunello Rosa
4 June 2020
by Brunello Rosa and Luca Bandello
3 June 2020
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28 May 2020
by Nouriel Roubini, Alessandro Magnoli Bocchi, Brunello Rosa and Marco Lucchin
15 May 2020
by Brunello Rosa and Karmen Meneses
2 June 2020
by Brunello Rosa
12 May 2020
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2 June 2020
Introduction: Trump’s Other Major Failings
Having outlined in my last articlethe many surprising accomplishments of this oddest of presidencies, I would be historically remiss if I didn’t end by chronicling the Trump White House’s outsize failures. In line with conventional wisdom, I will argue that the worst of these spring directly from character flaws lying deep within the President himself.
However, I depart from conventional wisdom in seeing that the worst Trump mistakes lie in the foreign policy realm, rather than in his divisive and chaotic domestic errors.
Before coming to the heart of the matter regarding Trump’s geostrategic missteps, certain other failings must be made clear. Yes, Donald Trump has helped--though the insufferably smug mainstream media has been at least equally culpable--in coarsening the body politic, in doing away with US customs and political traditions that have allowed for at least a semblance of bipartisan amity to exist.
Self-Centred Trump Has Increased The Already Existing Divisiveness In American Politics
Trump did not invent this problem (I watched it really take off during the Lewinsky scandal during my DC days), nor is he the only factor leading to the increased polarisation of American society. But, unlike almost every other modern president, he has revelled in these increased divisions, has blithely exacerbated them, and has done so without regret. This is a substantial failing, sadly one that will long outlive the Trump presidency.
Likewise, in his preternatural inability to ever admit fault or wrong (a deeply unattractive quality all too prevalent on both sides of the political aisle and indeed in American society in general), the president has failed in his role as chief mourner for the American Republic during the coronavirus crisis, a seminal error that may cost him the presidency itself.
The office of American Chief Executive has always had two basic components, that of Prime Minister (running the government) and that of king (ceremonially representing the nation). Ironically, the Trump White House—for all its chaos and despite its critic’s claims—has always been better at governing (as its record on pre-virus economics and deregulation makes clear) than at representing the country.
The cringe-worthy ubiquitous coronavirus press briefings have made this flaw crystal clear. Psychologically incapable of playing second banana while standing next to medical experts, time and again the president has weighed in on a subject about which he (and indeed most of us) knows next to nothing.
In turn, his hateful relationship with the press (where certainly blame flows both ways) has turned his neediness into an endless game of ‘gotcha,’ where the press deliberately asks the president questions hoping to trip him up, even as he sounds confident about the specifics of a crisis of which he clearly knows next to nothing. It has been a sickening sight and, frankly, a plague on both their houses.
However, by falling into the mainstream media’s trap, Trump—in his congenital narcissism—has entirely missed the boat on what his role was standing up at the White House podium in the first place: That of consoler-in-chief. The ceremonial side of the presidency is a vitally important aspect of the job, ably performed by such disparate political leaders as Theodore and Franklin Roosevelt, John Kennedy, Ronald Reagan and Bill Clinton.
By focusing almost entirely on himself and his distasteful sparring match with the press, the deaths of over 100,000 Americans seemed to be a shamefully slighted subject. This is where character matters, and could well cost Trump dearly at the ballot box, as his basic self-centredness—always noticeable—now seems absolutely repugnant after the pandemic tragedy has gripped the nation.
Working Backwards Towards a Devastating Conclusion
But even this is not where I primarily find historical fault with Donald Trump. No, the President’s greatest flaw is that—due to his personal character weaknesses themselves—he is not fit for purpose to lead America to victory in the incipient Cold War with China.
How do I reach such a drastic conclusion? Let us work backwards, focusing on what geostrategic victory over Beijing would look like, and then at what needs to be done in policy terms to bring this about. It will become staggeringly clear that Donald Trump simply does not possess the skill set to make the strategic moves necessary to ensure the absolutely vital American triumph in this, the pivotal political risk rivalry of our age.
Beneath the surface, the new Cold War is driven by a series of world historical forces. As brilliantly pointed out by Graham Allison, there is the structural angle to things, that in a world with one primary rising power and one established great power, conflict between the two is likely, as has proven the case since Athens and Sparta over the Peloponnesian War.
The far more aggressive foreign policy of Paramount Chinese Leader Xi Jinping, a repudiation Deng Xiaoping’s earlier efforts to quietly obscure Chinese power, has also made a Cold War far more likely.
Whether it is Chinese encroachments in the South China and East China Seas, the gigantic, Marshall Plan-style Belt and Road Initiative (BRI)—designed to enmesh Beijing as the dominant economic force on the pivotal Eurasian landmass--or Xi’s very public crackdown of dissent in both Hong Kong and Xinjiang province, the combination of factors made increased tensions with Washington highly likely.
So this we know: A Sino-American Cold War was already on the cards, but the great controversy over the COVID-19 pandemic has set these simmering tensions alight.
The good news is that by every measure, the US and its western allies ought to prevail in such a contest for global power. China’s only significant would-be ally is Russia. Indeed, the only possible military challenge to the US is a far closer fusion between Moscow and Beijing.
But this is unlikely to happen, given that President Putin’s continued popularity rests almost entirely on being seen as the ‘good Tsar,’ the embodiment of Great Russian nationalism. To play second fiddle to China (as in any closer alliance he must) is anathema to both Putin’s instincts and his political power base.
Internally, too, China has a raft of problems, ranging from increased over-dependence on inefficient State-Owned Enterprises (SOE’S), to the country’s utterly disastrous ‘One Child Policy.’ Put simply, due to this self-inflicted gaping demographic wound, China is likely to get old before it gets rich.
Yet while it is true China has few real friends and a number of intractable internal problems, the US must be very careful not to fritter away its primary advantages of having the world’s most dynamic economy and being at the centre of an unparalleled alliance system.
Which brings us nicely to Donald Trump. His early decision to walk away from the Trans-Pacific Partnership (TPP), an ambitious free trade agreement encompassing much of non-Chinese Asia—largely due to personal pique at being a signature issue of his hated predecessor, Barack Obama--looks even more catastrophic in retrospect. It amounted to a missed chance to establish a broadly pro-western, pro-democratic trading regime in Asia, the source of most of the world’s future economic growth.
Economically linking together a geo-strategically dominant League of Democracies as allies against China through free trade—comprising NATO in addition to the Quad-plus in Asia (Australia, India, the US, Japan, Taiwan and others)—is the obvious, necessary policy gambit that must be pursued to best Beijing over the long term.
While neither democratic Europe or Asia will tilt towards China outright, both have strong economic incentives to pursue a neutralist posture moving forward, sitting equidistant between the two superpowers, a strategic drift the US must stop at all costs if it is to ultimately prevail. The last thing needed is a protectionist trade policy which makes cementing closer economic ties between the US and Europe and the US and Asia less likely. Here Trump’s obvious protectionism is part of the problem, not part of the solution.
If Trump’s protectionism gets in the way of this new League of Democracies alliance, so too does his personal invective towards America’s allies around the world, all at the same time he seems fascinated by dictators ranging from Putin to Xi to Kim Jong-un. For example, while the president is entirely right to take feckless Europeans to task for irresponsibly under-spending on defence over decades, in his obvious personal vitriol toward America’s allies, he has endangered the alliance system that is a major source of the US’s geostrategic advantage.
Trump is right in that American leaders can and ought to be frustrated with allies, who deliver little while asking much; he is entirely correct in that for alliances to flourish in terms of interests there must be a two-way street. However, to personally belittle, dislike, and mock our friends around the world makes the establishment of a League of Democracies an impossibility. It is arrogant, self-destructive, unnecessary, and childish; in other words, this basic policy failing mirrors the President’s own personal lapses almost perfectly..
(This is an excerpt of Dr. Hulsman's latest article, which you can read here).
Dr. John C. Hulsman is the widely-read Senior Columnist for City AM, the newspaper of the city of London. Dr. Hulsman is also a Life Member of the US Council on Foreign Relations. His most recent work, the best-selling, To Dare More Boldly; The Audacious Story of Political Risk, was published by Princeton University Press in April 2018 and is available for order on Amazon. He can be reached for corporate speaking and private briefings at https://www.chartwellspeakers.com.
Week 1 - 7 June 2020
Chinese PMIs Likely To Show Recovery, The ECB Likely To Announce QE Expansion
In China, NBS PMIs are likely to show a recovery, with: i) manufacturing PMIs rising to 51.0 (p: 50.8); and ii)services PMI rising to 54.5 (p: 53.2). CBs to announce further easing.
In the EZ, the ECB is expected to: 1) keep its key policy rates unchanged; while 2) announcing a QE expansion of EUR 500bn, via PEPP purchases of public and private securities.
Multilateralism To Suffer, US-China Strains To Escalate, DM CBs To Maintain Easing Bias
US-China relations to deteriorate further. China’s government approved a plan to impose national security laws on Hong Kong - despite the US government’s declaration that such move would ‘signal that Hong Kong is no longer autonomous from Beijing’. As a result, the US announced it will: i) revoke special trade privileges or Hong Kong; and ii) sanction Chinese officials.
In the US, President Trump took a strong stance against the WHO, as he: 1) repeated his criticism of the organization’s handling of: i) the COVID-19 pandemic; and ii) China’s government ‘cover-up’ efforts; and 2) announced: i) the suspension of annual contributions amounting to USD 500m; and ii) the US membership withdrawal.
In the US, intensifying racial tensions resulted in widespread demonstrations, leading President Trump to raise the prospects of military intervention to contain the protests; the National Guard was deployed in Minneapolis, Minnesota. The Fed’s Chair Powell stated that the Fed is ‘strongly committed to deploying measures’ to help the economy during the pandemic, signaling readiness to take additional action, if needed.
In the EZ, to support the post-pandemic economic recovery the EC unveiled its proposal for a EUR 750bn fund, enabled to issue debt backed by the bloc’s members. The fund will: i) provide EUR 500bn in grants to the hardest-hit countries; ii) lend EUR 250bn; and iii) be supported by a seven-year budget that includes: a) new revenues streams, such as a digital and carbon tax; and b) cuts on spending for defense and administration.he government is seeking to consolidating its power in Hong Kong.
Real Economy: Growth Falls Sharply; Geopolitical Tensions Rise; Protests Spread In The US
In the US, in Q1 the economy shrank faster-than-expected (a: -5.0% y-o-y; c: -4.8; p: 2.1), due to a large inventory drawdown. For the week ending on May 23, the number of ‘initial unemployment claims’ declined - in line with consensus - to 2.1m (c: 2.1m; p: 2.5m), the lowest increase since job losses began in March; similarly, ‘continuing claims’ marked the first decrease during the pandemic period (a: 21.1m; c: 25.8m; p: 24.9m). In April, ‘durable goods orders’ sank by -17.2% m-o-m (c: -19.0; p: -16.6); yet, offering some optimism, ‘core capital goods’ – i.e.: ‘non-defense capital goods’ orders excluding aircrafts, a leading indicator for capital expenditure – declined by -5.8% m-o-m, against expectations of a -10.0% contraction (p: 1.6%). Personal spending contracted by -13.6% m-o-m (c: -12.6; p: -6.9), while personal incomes rose by 10.5% (c: -6.5; p: -2.2) - given a surge in government transfer payments.
In the US, the PCE – the Fed’s preferred inflation gauge – eased to 0.5% y-o-y (p: 1.3); core PCE – which excludes volatile food and energy prices - slowed to 1.0% (c: 1.1; p: 1.7).
In the EZ, the May inflation rate declined to 0.1% y-o-y (c: 0.1; p: 0.3) and core inflation remained flat at 0.9% (c: 0.8).
In Japan, April data suggest the economy is falling into a recession even deeper than in Q1, as: i) retail trade contracted by -13.7% y-o-y (c: -11.5; p: -4.7%); and ii) IP shrank by -14.4% y-o-y (c: -10.6; p: -5.2).
In Turkey, in Q1, before the economic hit of COVID-19, GDP expanded by less than expected at 4.5% y-o-y in Q1 (c: 5.4; p: 6.0).
Financial Markets: Recovery Hopes Outweigh Negative Economic Data; Stocks Rise, Bonds Flat
Market drivers: investor sentiment rose on eased lockdowns and optimism about vaccine development.
Stocks: w-o-w, global indices rose (MSCI ACWI, +3.6%, to 509), driven by the US (S&P 500, +3.0% to 3,044) and the EZ (Eurostoxx 50, +5.0% to 3,055). US equities were buoyed by a milder-than-expected US response to China’s actions in Hong Kong – e.g. most analysts had feared the scrapping of the ‘phase one’ trade deal. EMs rose (MSCI EMs, +2.8% to 930).
Bonds: w-o-w, returns were flat (BAML Global, +0.2% to 293.8); the yield on a 10y UST fell by 2bps to 0.64%. Volatility fell to 27.5 (p: 28.2), but remains above historical averages (52w: 22.3; 10y: 17.2).
FX: w-o-w, the USD weakened (DXY, -1.5% to 98.344), while both EUR and GBP strengthened (EUR/USD, +1.8% to 1.110; GBP/USD, +1.5% to 1.234).
Commodities: Oil rose on monetary stimuli hopes, and WTI closed above Brent (Brent, +0.6% to 35.3 USD/b; WTI, +6.7% to 35.5 USD/b). Gold kept its safe haven appeal (-0.4% to 1,726 USD/Oz.).
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