Tag: Approved
Cars block the road to a renegotiated NAFTA
ROBERT LIGHTHIZER, the United States Trade Representative, wants renegotiation of the North-American Free Trade Agreement (NAFTA) to speed up. When the sixth round of talks ended on January 29th with only three chapters agreed, he griped: “We owe it to our citizens, who are operating in a state of uncertainty, to move much faster.” But given the changes he wants, any more speed risks a crash.
One of the biggest fights is over Mr Lighthizer’s desire to rewrite NAFTA’s rules about cars. Seen one way, the deal has been a boon for the industry. Trade in vehicles and their parts accounts for a quarter of America’s two-way trade with Mexico and Canada. But NAFTA’s critics see it as a big reason for America’s trade deficit with Mexico, and for its falling share of car assembly (see chart). Rules riddled with holes should be rewritten, they think, to yank back American jobs.
Might higher interest rates spoil America’s economic boom?
AMENDING a famous metaphor, Janet Yellen once said that the Federal Reserve would “keep refilling the punch bowl until the guests have all arrived”. This week investors began to wonder if Jerome Powell, who will shortly succeed Ms Yellen at the top of the Fed, might at last deem the party full. On January 29th the ten-year Treasury yield reached 2.7%, the highest since early 2014. The prospect of tighter money caused stockmarkets to sneeze. On January 30th the S&P 500 fell by 1.1%, its biggest decline since August, before recovering a tiny bit the next day. With unemployment low and tax cuts pending, investors are wondering whether inflation and interest rates might soon surge.
The economy grew by 2.5% in the year to the fourth quarter of 2017. According to Okun’s law, a rule of thumb relating unemployment to GDP, falling joblessness explains almost half of this growth. (The unemployment rate fell from 4.7% to 4.1% over the same period.) Early in the year inflation fell short, suggesting that fast growth could continue unabated. But pressure on prices has begun to build. Quarterly core inflation, which excludes volatile food and energy prices, was only just below the Fed’s 2% target at the end of 2017. Markets have recently come to believe rate-setters who say that they will tighten policy three times in 2018 (see chart), as happened in 2017.
A safe asset is devised for the euro zone
THESE are bright days in the euro area. Preliminary figures say that the currency zone’s GDP grew by 2.5% last year, the fastest since 2007. But many of the faultlines in the zone’s financial system, as revealed by the financial crisis, remain. A proposal published on January 29th by a group reporting to the European Systemic Risk Board, a prudential supervisor, may mend one of the more troubling flaws.
Euro-area banks favour their home countries’ debt. A sample of 76 lenders examined by supervisors last year had exposures of €1.7trn ($1.9trn) to euro-area governments, of which €1.1trn was lent to their home states. That exceeded the banks’ common equity tier-1 capital, their cushion against losses, of €1trn. The fortunes of states and banks are thus bound in a “doom loop”. Suppose an economic shock raises the risk of a sovereign default. Banks’ balance-sheets start to crumble. They need propping up by the already wobbly state. And as they cut lending, the real economy weakens,…Continue reading
“Factor investing” gains popularity
RETAIL investors tend to dream of finding a wonder stock—a Netflix or Apple that will multiply their savings many times over. But institutional investors cannot commit too much capital to one individual company. Instead, they hope to pick the right kind of stocks, a broadly based group that will beat the market.
Two or three decades ago, fund managers would have attempted this feat by favouring one industry over another. They might, say, have bought energy stocks in the hope that the oil price would rise, while avoiding retailers because of fears about consumer spending. But in these days of computers and algorithms, there are more systematic approaches to beating the market. The aim is to find stocks with characteristics or “factors” that make them outperform. In the industry jargon, funds tracking these factors are known as “smart beta”. The money allocated to smart-beta exchange-traded funds has reached $658bn; all told, more than $1trn is invested in an explicitly factor-based…Continue reading
Zhou Xiaochuan, China’s central-bank chief, is about to retire
WHEN Zhou Xiaochuan took the helm of China’s central bank 15 years ago, the world was very different. China had just joined the World Trade Organisation and its economy was still smaller than Britain’s. Foreign investors paid little heed to the new governor of the People’s Bank of China. He seemed safe to ignore: another black-haired, bespectacled official whose talk was littered with socialist bromides.
Mr Zhou is widely expected to retire in the coming weeks. He leaves with China far stronger and his own role much more prominent. No one person can take credit for the flourishing economy. But Mr Zhou, who is 70, deserves more than most. He helped forge the monetary environment for China’s growth. He also went a long way to dragging the financial system out of the mire of central planning, even if reforms fell short of his own wishes.
His achievements are surprising. China makes no pretence of having an independent central bank. The People’s Bank is under the State Council, or…Continue reading
Collaborations are becoming more common in popular music
FEW who have given an address at Harvard Business School have a CV like that of Khaled Mohamed Khaled, who spoke there in 2016. The 42-year-old music producer began his career as a record-store clerk and radio host. Today DJ Khaled, as he is known to fans, is one of the world’s most successful hip-hop artists. Although critics may disagree on the merits of Mr Khaled’s music, his selling strategy—bringing together the hottest pop stars of the moment—is worthy of any business-school classroom. America’s music industry is increasingly following his formula.
Collaborations like those assembled by Mr Khaled are nothing new. Ever since the hip-hop group Run-DMC teamed up with Aerosmith, a rock band, to record “Walk This Way” in 1986, record labels have recognised that combining the fan bases of multiple artists can be a boon to record sales. The practice has spread. According to data from the Billboard…Continue reading
In popular music, collaborations rock
FEW who have given an address at Harvard Business School have a CV like that of Khaled Mohamed Khaled, who spoke there in 2016. The 42-year-old music producer began his career as a record-store clerk and radio host. Today DJ Khaled, as he is known to fans, is one of the world’s most successful hip-hop artists. Although critics may disagree on the merits of Mr Khaled’s music, his selling strategy—bringing together the hottest pop stars of the moment—is worthy of any business-school classroom. America’s music industry is increasingly following his formula.
Collaborations like those assembled by Mr Khaled are nothing new. Ever since the hip-hop group Run-DMC teamed up with Aerosmith, a rock band, to record “Walk This Way” in 1986, record labels have recognised that combining the fan bases of multiple artists can be a boon to record sales. The practice has spread. According to data from the Billboard…Continue reading
The dollar keeps weakening. Is that good news for the world?
AT THE start of 2017, just before Donald Trump was inaugurated as president, a survey of fund managers by Bank of America Merrill Lynch (BAML) found they believed that being positive on the dollar was “the most crowded trade”. It turned out they were right to be cautious. On a trade-weighted basis, the currency has fallen by 9% against other major currencies in the past year.
It is not clear what the Trump administration thinks about this. At the recent World Economic Forum in Davos, Steven Mnuchin, the treasury secretary, said: “Obviously a weak dollar is good for us as it relates to trade and opportunities.” Although the rest of his statement was more nuanced, it is unusual for anyone in his position to depart from a “strong dollar” line. The greenback duly fell in price.
Mr Trump then followed up with a statement in favour of a strong dollar in the long term, which caused a rebound. Since it was only last April that he referred to the dollar as being “too…Continue reading
Droughts, storms and global demand tests America’s love affair with avocado
ALTHOUGH New Yorkers are not renowned for their patience, they do not seem to mind waiting their turn for a fresh serving of avocado. At Avocaderia, which claims to be the world’s first avocado bar, in Brooklyn, long queues stretch from the counter outward into a large food hall.
The venue’s popularity is a sign of the times: the avocado is fast becoming America’s favourite fruit. Although domestic production has stayed flat, imports have more than trebled over the past ten years, according to the Department of Agriculture. It estimates that the annual consumption of the average American has increased from about one pound (0.5 kilograms) in 1989 to more than seven pounds in 2016; total consumption that year weighed in at 2.3bn pounds.
America’s enthusiasm for avocados may be dented, however, by soaring prices. The wholesale price for a case of 48 avocados peaked at $83.75 in September, up from $34.45 a year before,…Continue reading
Richemont, the world’s second-biggest luxury firm, bets on digital
A YOUTUBE video featuring a woman sporting a gold watch and driving a convertible, which has been viewed online nearly 5m times. A social-media “influencer” with more than 11m followers on Instagram posting photos of herself wearing the same timepiece. A limited flash sale of the watch on Net-a-Porter, a website.
Purveyors of pricey jewellery and watches have been slow to embrace things digital. But last year’s social-media campaign to relaunch Panthère, a watch made by Cartier, a French jeweller, is evidence that they are waking up to the power of the online world. On January 22nd Richemont, a Swiss luxury conglomerate that counts Cartier among its brands, offered to buy the shares it does not already own in Yoox-Net-a-Porter group (YNAP), a leading luxury online retailer, for €2.7bn ($3.3bn). Although the deal still faces hurdles, it is likely to go ahead.
The days of double-digit growth in the luxury industry are gone—it…Continue reading