Day: June 2, 2017

The U.S. trade deficit rose in April to the highest level since January. The politically sensitive trade gap with China registered a sharp increase.

The Commerce Department said Friday that the U.S. trade gap in goods and services climbed 5.2 percent to $47.6 billion in April from March. Exports dropped 0.3 percent to $191 billion, pulled down by a drop in automotive exports. Imports rose 0.8 percent to $238.6 billion as Americans bought more foreign-made cellphones and other consumer goods.

So far this year, the trade deficit is up 13.4 percent from a year earlier to $186.6 billion. Exports are up 6.1 percent to $765.6 billion this year, but imports are up more _ 7.5 percent to $952.2 billion. So far in 2017, the United States is running a $268.7 billion deficit in goods and an $82.1 billion surplus in services such as banking and tourism.

The deficit in goods with China rose by 12.4 percent to $27.6 billion in April.

The Trump administration has vowed to reduce the trade deficit, blaming the gap between exports and imports on abusive practices by America’s trading partners.

President Donald Trump recently has singled out Germany for criticism, saying it is unfairly benefiting from a weak euro. When a country’s currency is weak, its products enjoy a price advantage in foreign markets. The trade deficit with Germany rose 4.3 percent in April to $5.5 billion.

 
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The price of oil has fallen sharply as investors bet that President Donald Trump’s decision to pull the United States out of the Paris climate agreement will increase the country’s oil and gas production.

The cost of a barrel of crude slumped 2.4 percent, or $1.18, to $47.18 in electronic trading in New York on Friday, hours after Trump said the U.S. would immediately stop implementing the Paris deal. He said his administration could try to renegotiate the existing agreement or try to create a new one that is more favorable to the U.S.

The deal would have required the U.S. to reduce polluting emissions by more than a quarter below 2005 levels by 2025, potentially limiting the growth of high-emissions industries like oil and gas production. Economists, however, say that the climate deal would likely help create about as many jobs in renewable energy as it might cost in polluting industries.

U.S. oil production has already been increasing in recent months since the price of crude came off lows last year, making expensive shale oil extraction more economically viable.

“Now that U.S. President Trump has announced that the U.S. will be withdrawing from the Paris Climate Agreement, it is expected that the U.S. will expand its oil production even more sharply,” said analysts at German bank Commerzbank.

The increase in U.S. production is neutralizing the efforts of the OPEC cartel and other major oil-producing nations, like Russia, to support prices by limiting their output. OPEC and 10 other countries led by Russia agreed last week to extend for nine months, to March, a production cut of 1.8 million barrels a day initially agreed on in November.

On Friday, the head of Russia’s state-controlled Rosneft oil giant said that that a rise in shale oil output in the U.S. would likely offset the effect from the OPEC and Russian production cuts.

Speaking at an economic forum in St.Petersburg, Rosneft CEO Igor Sechin said that the OPEC and Russian cuts fall short of “systemic measures that would lead to long term stabilization.”

He said that thanks to increasing efficiency, U.S. shale oil producers would likely deliver an additional 1.5 million barrels of crude a day to the market in 2018.
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The heated debate over India’s cash ban continues, with critics saying it slowed an economy that was growing, while the government says economic momentum was barely affected.

Critics say the scrapping of 86 percent of the country’s currency last November cost India its status as the world’s fastest growing economy.

According to data released this week, from January to March, growth plunged to 6.1 percent – lower than China’s 6.9 percent growth in the same period.

Overall growth for the last financial year, which began in April 2016 and ended in March 2017, however, stood at 7.1 percent.

Finance Minister Arun Jaitley has tried to distance the disappointing economic numbers from the currency ban, citing other factors.

“There was some slowdown visible, given the global and domestic situation, even prior to demonetization in the last year,” he told reporters.

The slowdown affected almost all sectors of the economy, with farming, manufacturing and services all taking a hit. With people scrambling to get access to new notes, consumption slowed sharply, impacting both small shopkeepers and large businesses.

The government, however, is encouraged by forecasts that the economy is expected to recover swiftly on the back of monsoon rains, which are expected to be plentiful, and a slew of major reform measures.

As economists estimated growth this year will rebound to 7.4 percent, the government pointed out that India’s economy is still among the world’s top performers. Jaitley said given the global scenario, “7 to 8 percent growth, which at the moment is the Indian normal, is fairly reasonable and by global standards very good.”

There are widespread expectations of a major economic boost from India’s most ambitious tax reform action since independence – the launch of a nationwide tax that will replace a plethora of levies starting July 1.

The World Bank said this week the reform would lower the cost of doing business for firms and reduce logistics costs.

In the coming year, “we actually have very strong fundamentals of the Indian economy, GDP growth being up, exports have revived and there has been continued reform momentum,” said Frederico Gil Sander, a senior economist at the World Bank in New Delhi.

And while demonetization undoubtedly left its imprint on India by slowing down the economy, the government is optimistic there will be long-term gains because the move would help clean up an economy where many businesses and professionals evade taxes, resulting in the generation of what is known as “black money.”

“The message has gone loud and clear and it continues to this day that it is no longer safe to deal in cash,” said Jaitley.

Skeptics say only improved tax collections in the coming years will demonstrate whether that is true, or whether tax evasion remains a challenge in a country where cash transactions are the norm in large sectors of the economy.
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Long the preserve of geeky enthusiasts, bitcoin is going mainstream in Asia, attracting Mrs Watanabe — the metaphorical Japanese housewife investor — South Korean retirees and thousands of others trying to escape rock-bottom savings rates by investing in the cryptocurrency.

Asia’s moms and pops, regular investors in stock and futures markets, have been dazzled by bitcoin’s 100 percent surge so far this year. In comparison, the broader Asian stocks benchmark has gained 17 percent over the same period.

Even after a tumble from last week’s record $2,779.08 high, bitcoin rose more than 60 percent in May alone, driven higher in part by investors in Japan and South Korea stepping in as China cooled after a central bank crackdown earlier this year.

Legal tender in Japan

Over the last two weeks, and encouraged by Japan’s recognition of bitcoin as legal tender in April, exchanges say interest has jumped from the two countries. Bitcoin trades at a premium in both, because of tough money-laundering rules that make it hard for people to move bitcoin in and out.

“After I first heard about the bitcoin scheme, I was so excited I couldn’t sleep. It’s like buying a dream,” said Mutsuko Higo, a 55-year-old Japanese social insurance and labor consultant who bought around 200,000 yen ($1,800) worth of bitcoin in March to supplement her retirement savings.

“Everyone says we can’t rely on Japanese pensions anymore,” she said. “This worries me, so I started bitcoins.”

Thriving investment culture

Asia has proved fertile ground for bitcoin because of the region’s thriving retail investment culture, where swapping investment tips is common. China, Japan and South Korea are home to several of the world’s busiest cryptocurrency exchanges, according to a ranking by CoinMarketCap.

“Right now, it’s a form of speculation, like stocks,” said Park Hyo-jin, a 27-year-old South Korean who owns around 3 million won ($2,700) of bitcoin. “I don’t think anybody in South Korea buys bitcoin to use it.”

The risks, though, are rising too.

Bitcoin is largely unregulated across Asia, while rules governing bitcoin exchanges can be patchy.

In Hong Kong, bitcoin exchanges operate under money service operator licenses, like money changers, while in South Korea they are regulated similar to online shopping malls, trading physical goods. Often there are no rules on investor protection.

Park and Higo were drawn into bitcoin by friends. Others are attracted through seminars, social media groups and blogs penned by amateur investors.

Noboru Hanaki, a 27-year-old Japanese web marketer and bitcoin investor, said his personal finance blog gets around 30,000 page views each month. The most popular post is an explanation of bitcoin, he said, noting that when the bitcoin price surged last month, readership of the article doubled.

Rachel Poole, a Hong Kong-based kindergarten teacher, said she read about bitcoin in the press, and bought five bitcoins in March for around HK$40,000 ($5,100) after studying blogs on the topic. She kept four as an investment and has made HK$12,000 tax-free trading the fifth after classes.

“I wish I’d done it earlier,” she said.

Not everyone’s making money.

Scams, pyramid schemes

The bitcoin frenzy has spawned scams, with police in South Korea last month uncovering a $55 million cryptocurrency pyramid scheme that sucked in thousands of homemakers, workers and self-employed businessmen seduced by slick marketing and promises of wealth.

Leonhard Weese, president of the Bitcoin Association of Hong Kong and a bitcoin investor, warned amateur investors against speculating in the digital currency.

Some larger exchanges have voluntarily adopted security measures and compensation guarantees, according to their websites, although there are dozens of smaller platforms operating more or less unchecked.

In South Korea, the Financial Services Commission (FSC) has set up a task force to explore regulating cryptocurrencies, but it has not set a timeline for publishing its conclusions, an official there said.

In Japan — where memories are still fresh of the spectacular 2014 collapse of Mt. Gox, the world’s biggest bitcoin exchange at the time — the Financial Services Agency (FSA) said it supervises bitcoin exchanges, but not traders or investors.

Some professional investors say bitcoin can be a useful hedge to help diversify a portfolio, but investors should be cautious.

“This is an extremely volatile and innovative asset class,” said Pietro Ventani, managing director of APP Advisers, an asset allocation strategy firm.
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Exactly eight years after the Great Recession ended, the U.S. job market has settled into a sweet spot of steadily solid growth.

The 4.4 percent unemployment rate matches a decade low. Many people who had stopped looking for jobs are coming off the sidelines to find them. More part-timers are finding full-time work. About all that’s still missing is a broad acceleration in pay. 

On Friday, when the government releases the jobs report for May, that pattern is likely to extend itself. The consensus expectation of economists is that the Labor Department will report that employers added 176,000 jobs, according to a survey by FactSet, a data provider. That’s right in line with the monthly average of 174,000 over the past three months.

All told, it’s evidence of an American economy that is running neither too hot nor too cold, with growth holding at a tepid but far from recessionary 2 percent annual rate. Few economists foresee another downturn looming, in part because the recovery from the recession has been steady but grinding, with little sign of the sort of overheated pressures that normally trigger a recession.

May jobs expectations high

Separate reports Thursday solidified expectations that job growth for May was healthy. Payroll processor ADP reported that in a private survey of companies, it found that a hefty 253,000 jobs were added in May, mostly among companies with fewer than 500 workers.

Nor are layoffs much of a concern. Weekly applications for unemployment benefits, which tend to reflect the pace of layoffs, averaged a low 238,000 over the past four weeks, according to the Labor Department.

The government’s monthly jobs report produces a net gain by estimating how many jobs were created and comparing that figure with how many it estimates were lost.

The unemployment rate is expected to have remained in May at 4.4 percent, a low figure that historically has reflected a healthy job market. If hiring maintains its current pace, it would exceed population growth, and the unemployment rate should eventually fall even further.

Mark Zandi, chief economist at Moody’s Analytics, estimates that monthly job growth above 80,000 or so should cause the unemployment rate to fall.

“I think 4 percent unemployment is dead-ahead, and we’ll probably go past that,” he said. 

Other measures of unemployment

Still, the jobs report produces several different measures of unemployment, and the broadest gauge might be most critical to watch Friday. This particular measure includes not only the officially unemployed but also part-time workers who would prefer full-time jobs and people who want a job but aren’t actively looking for one and so aren’t counted as unemployed.

Known as the “U-6” rate, this measure is one of the favorite metrics for Trump administration officials. The U-6 has plunged since January to 8.6 percent in April, a 0.8 point decline.

The decline in that measure is an encouraging sign that jobless people who had given up hope of working are now being hired. If that trend continued in May, a falling U-6 would point to a strengthening economy despite weak growth during the first three months of the year.

But the influx of job seekers can also inflict a drag on pay growth. As more people start seeking jobs, employers begin to have less incentive to raise pay. It’s only when employers face a shallow pool of job applicants that they tend to feel compelled to raise pay in hopes of hiring people who fit their needs.

Annual growth in average hourly earnings was a so-so 2.6 percent in April. And whatever meaningful pay raises that exist are going disproportionately to managers and supervisors. For workers who aren’t supervisors, average hourly pay has risen just 2.3 percent. In a healthy economy, average pay gains would typically grow roughly 3.5 percent a year.

The Trump administration has designated the pace of hiring for good-paying skilled jobs in construction, manufacturing and mining as among the key categories it monitors for economic health. Those three sectors were relatively weak in April.
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