Symax Fintech Daily Insights 31.08.23

More bad news is good. US second-quarter GDP was revised down to 2.1%, while the ADP report showed firms added fewer than expected jobs this month, reinforcing speculation the Fed’s tightening cycle is nearing the end. Next: The core PCE deflator may hold at a subdued 0.2% for July. China’s economy likely deteriorated across the board in August. BB

The US government’s main measure of economic activity in the second quarter was revised lower as more moderate business investment than initially reported outweighed stronger consumer spending. Gross domestic product rose at a revised 2.1% annualized pace in the second quarter, below the government’s previous estimate. The downward revision to GDP reflected less inventory and nonresidential fixed investment. Household spending, the engine of the US economy, was revised higher to 1.7%. BB

US regulators have been quietly warning midsize lenders that they better shore up their liquidity planning, part of intensifying government supervision following multiple regional bank collapses earlier this year. The Federal Reserve is said to have issued a series of private warnings to lenders with assets of between $100 billion to $250 billion—including Citizens Financial Group, Fifth Third Bancorp and M&T Bank. The wide-ranging notices have touched on everything from capital and liquidity to technology and compliance. The crackdown comes as examiners look for signs of stress in a system already strained by the demise of First Republic Bank, Signature Bank and Silicon Valley Bank. —David E. Rovella BB

Food inflation rates have been cooling for the past couple of months, and July’s inflation figures even showed a small Month-on-Month decrease in the European Union. That said, food prices remain at high levels. A typical EU consumer currently pays almost 30% more for groceries compared to the start of 2021, with some considerable differences across the continent.

In Hungary, prices have gone up by more than 60% since January 2021, while food prices in Ireland went up by ‘only’ 19%. Across Europe, consumers reacted by buying less, shopping more at discount supermarkets and favouring private label products over brands.

The trend in the US looks fairly similar. The main difference is that ‘cooling down’ set in a little earlier, and the relative increase was lower compared to Europe. That’s partly explained by the fact that US food makers are less exposed to the energy price shock compared to their peers in Europe. American food prices started to move sideways in the first quarter of this year; a typical American consumer currently pays 20% more for groceries compared to the start of 2021. BB

UBS posted the biggest-ever quarterly profit for a bank thanks to its Credit Suisse takeover and said it will fully integrate the Swiss business by next year. The $29 billion gain is a result of the accounting difference between the $3 billion price UBS paid for Credit Suisse and the value of the acquired lender’s balance sheet. UBS now commands about $5 trillion in client assets. BB

UK officials should consider lifting the BOE’s inflation target from 2% once rampant price growth is brought under control, according to Karen Ward, an adviser to Chancellor Jeremy Hunt. The CBI said Britain’s year-old private sector slump will probably continue for at least the next three months. But the Lloyds business confidence barometer hit an 18-month high in August. BB

The weighting of property stocks in the FTSE 100 has fallen from almost 3% before the pandemic to about 1.7%. Persimmon is the latest company that will be relegated to the midcap FTSE 250 Index, where it will join other former members of the blue-chip gauge, including British Land and Hammerson. BB

Apple is said to be testing the use of 3D printers to produce the steel chassis used by some of its upcoming smartwatches, heralding a major change to how the company manufactures products. BB

Iran is slowing the rate at which it’s stockpiling near weapons-grade uranium, the IAEA is expected to conclude next month, adding to a recent easing of Persian Gulf tensions. It would be the first real indication of a deceleration by Tehran after several years of expanded nuclear activity, according to the International Crisis Group. Still, it won’t do much to dispel proliferation concerns, the group added BB

The bleak outlook for Germany’s property and construction industries risk dragging the nation back into recession, Chris Bryant writes. Just as at the turn of the century, a protracted economic malaise may be what’s needed to spur Germany to take decisive action. There’s certainly the makings of such a crisis in its real estate sector. BB

Chinese developer Country Garden warned that it may default on its debt and raised concerns about staying in business after posting a record first-half loss of almost $7 billion. The company said in a filing that if its financial performance continues to deteriorate, the group might not be able to meet debt obligations. Once the country’s biggest developer by sales, Country Garden is in a debt spiral that may be worse than rival Evergrande’s, because it has four times as many property projects. China’s property slump has been worsening, with new home sales falling the most in a year in July. The government earlier unveiled a further easing of its mortgage policies in an effort to halt the housing slowdown. BB

The surprise launch of a sophisticated Huawei smartphone has created a buzz in China, triggering speculation that the company has managed to achieve 5G capabilities despite US sanctions designed to thwart such advances. Following the appearance of the slim-bezeled Mate 60 Pro with little fanfare, delighted Chinese fans posted screenshots and videos of the gadget’s fast wireless performance. Shares in more than a dozen Chinese chip designers, gearmakers and Huawei suppliers surged between 8% and 20%, on hopes that the company had somehow managed to design, manufacture and deploy a 5G chip capable of matching some of the best America has to offer. BB

The latest Chinese official PMI data were not uniformly bad. The manufacturing index actually rose slightly, to 49.7, and this is the third consecutive increase since the May trough of 48.8. But it remains below the 50-level that is associated with expansion, and so merely represents a moderation in the rate of decline. That may be of some comfort to those of a sunny disposition. 

The non-manufacturing series, which had reflected the bulk of the post-re-opening recovery, fell further in August. The index of 51.0 was a little lower than the forecast figures (51.2) but it is at least still slightly above contraction territory. ING

Drone attacks targeted multiple regions deep inside Russia. Four Ilyushin Il-76 military transport planes were damaged at an airport in Russia’s northwestern Pskov region, state-controlled media said. Russian air defenses claimed they shot down drones in five other regions including near Moscow, as well as in Sevastopol in occupied Crimea. The strikes came as the Ukrainian military cites progress in a grinding three-month counteroffensive to reclaim territory and steps up attacks far behind the front lines, including deploying sea drones against Russian ships in the Black Sea. Last week it also staged a special-forces raid in Crimea. At the same time, however, Kyiv has seen its heaviest air assault since the spring. But another weapon from the US may change that equation. BB

How much clout can the newly expanded BRICS group really wield in the global economy? 

More than two decades since the original bloc of Brazil, Russia, India and China was first formed, its tally of membership is poised to reach 11 countries that represent more than a third of world gross domestic product.

But Bloomberg Economics researchers led by Jennifer Welch say the group’s biggest initiatives, such as creating substitutes to the International Monetary Fund and the World Bank as well as plans for an alternative to the US dollar, may fall short of their ambitions. 

“There’s little unity within BRICS when it comes to facing off against the US. Its institutions, like the New Development Bank, have disbursed little funds. And there’s no consensus on trading in non-dollar currencies within the group,” BE Chief Geoeconomics Analyst Welch said. BB