Geopolitical fragmentation could cut global GDP by 2 percent: IMF

WASHINGTON - Growing geopolitical fragmentation around the world, including the US-China trade war and the Russian invasion of Ukraine, could cut global output by two percent over the long run, the International Monetary Fund said.

Research by the IMF found that growing geopolitical tensions were causing a reallocation of foreign direct investment (FDI) away from countries that were geographically close and towards those that were geopolitically close, like the United States and Europe.

This reallocation of FDI has the potential to cause serious damage to emerging market economies, the IMF said, since they are more reliant on inflows of investment from more geopolitically distant countries.

"In general, a fragmented world is likely to be a poorer one," IMF officials wrote in a blog post published Wednesday to accompany the research.

Policymakers "should carefully balance the strategic motivations behind reshoring and friend-shoring against economic costs to their own economies and the spillovers to others," the IMF officials wrote, adding that it was "crucial" to try and foster greater global integration.

The IMF also published research on Wednesday outlining the impact to the banking sector of geopolitical fragmentation, highlighting the cost to Russia and its allies of the 2022 invasion of Ukraine.

"Cross-border banking and portfolio debt flows to Russia and its allies (countries that rejected the motion in the United Nations in March 2022 to condemn Russia’s war on Ukraine) have reversed sharply, with allocations falling by about 20 and 60 percent relative to prewar levels, respectively," IMF officials wrote in a blog post.

The report found that rising tensions between investing and recipient countries like the United States and China had reduced the overall bilateral cross-border allocation of portfolio investment and bank claims by around 15 percent.

Agence France-Presse

Fed mulls bigger rate hikes to cool US economy

WASHINGTON - The United States is prepared to speed up interest rate hikes –- and could raise them higher than anticipated -- if needed to cool inflation and a strong jobs market, Federal Reserve Chair Jerome Powell said.

An "unseasonably warm" January across much of the country was likely behind the robust employment, consumer spending, manufacturing and inflation figures, which pointed to a partial reversal of earlier softening trends, Powell told the Senate Banking Committee. 

"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," he said.

He added that the "ultimate level of interest rates" is likely to be higher than previously anticipated as well.

Stocks fell sharply following Powell's comments, with the Dow Jones Industrial Average closing 1.7 percent lower.

The dollar strengthened sharply against the euro and other major currencies, while the two-year US Treasury yield surged above five percent. 

Chance of bigger hike 

The US central bank has already raised its benchmark lending rate 8 times since early last year, as it contends with inflation that remains stubbornly above its long-term target of two percent.

It raised rates last month by a quarter percentage point to 4.50-4.75 percent, its highest level since the global financial crisis.

Powell's comments raise the likelihood of the Fed lifting rates by 50 basis points at its next meeting this month, Evercore ISI economists Krishna Guha and Peter Williams wrote in a note to investors.

"We must accept that this option appears to be somewhat more live than we had previously believed," they said, though adding that a quarter-point hike was still the more likely option.

Markets are now roughly evenly split on the chances of a larger half-point rate hike, said Joe Manimbo, senior market analyst at Convera.

Despite its forceful moves, the Fed's favored inflation measure, the personal consumption expenditures (PCE) price index, rose slightly to reach an annual rate of 5.4 percent in January.

Core PCE inflation, which excludes volatile energy and food prices, also rose 4.7 percent.

At the same time, the labor market remains "extremely tight," with close to two jobs available for every one unemployed person in December, Powell said.

US job creation surged in January, with employers creating more half a million new jobs and driving the unemployment rate to its lowest level since the 1960s.

A strong labor market supports incomes and, in turn, demand.

"To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labor market conditions," Powell said.

Debt ceiling pressure

At Tuesday's hearing, Powell also faced questions about ongoing negotiations between the Biden administration and Republicans in Congress over raising the debt ceiling.

"Whatever else may happen Congress really needs to raise the debt ceiling," Powell said, adding to calls for the two sides to come to an agreement.

The United States hit its $31.4 trillion borrowing cap in January, kicking off frantic talks between Congress and the White House to raise the limit and allow the US to meet pre-existing spending commitments. 

Republicans in Congress have asked for spending cuts in exchange for their support, while the Biden administration has said it wants to separate any talks over the upcoming budget from the debt limit vote.

The nonpartisan Congressional Budget Office warned last month that the country risks defaulting on its debt as soon as July if an agreement is not reached. 

Powell's appearance comes shortly after the US central bank released a semiannual report on monetary policy, which pointed to a tight labor market, robust job gains, historically low unemployment and elevated nominal wage growth.

"The process of getting inflation back down to two percent has a long way to go and is likely to be bumpy," Powell said. "We will stay the course until the job is done."

Agence France-Presse

Central banks must act quickly on inflation, warns BIS

ZURICH, Switzerland - Central banks must not let inflation become entrenched, with the threat of stagflation looming over the global economy, the Bank for International Settlements warned Sunday in its annual economic report.

BIS, considered the central bank of central banks, said institutions will have to move swiftly to ensure a return to low and stable inflation, while limiting the impact on growth.

"The key for central banks is to act quickly and decisively before inflation becomes entrenched," said BIS general manager Agustin Carstens.

"If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs."

BIS's flagship report said that in restoring low, stable inflation, central banks should seek to minimize the hit to economic activity, in turn safeguarding financial stability.

BIS said engineering a so-called soft landing had historically been difficult, and the starting conditions now were making the task all the more challenging.

"It would be more desirable if we could have a soft landing because that would mean that the tightening of monetary policy could be more subdued," Carstens told a press conference.

"But even if this is not the case, definitely the priority should be to combat inflation," to prevent the world economy from slumping. 

STAGFLATION DANGERS

After the shock of the Covid-19 pandemic, central banks initially saw the return of inflation as temporary as the economy picked up again.

But the rise in prices has sharply accelerated since Russia's invasion of Ukraine in February.

BIS said the global economy risked entering a new era of high inflation.

The dangers of stagflation -- stagnant growth coupled with rising prices -- loom large, as a combination of lingering disruptions from the pandemic, the war in Ukraine, soaring commodity prices and financial vulnerabilities cloud the outlook, it added.

Policymakers must press ahead with reforms to support long-term growth and lay the groundwork for more normal fiscal and monetary policy settings, BIS said.

While the European Central Bank plans to raise interest rates in July and then again September, the US Federal Reserve on Wednesday carried out its largest rate hike since 1994.

The Fed announced a 0.75-percentage-point rise and said it is prepared to do so again next month in an all-out battle to drive down surging inflation.

1970s COMPARISON

Established in Basel in 1930, the BIS is owned by 62 central banks, representing countries that account for about 95 percent of global gross domestic product (GDP).

In its annual report, the BIS looked at the stagflation of the 1970s, when the oil shocks of 1973 and 1979 caused inflation to jump.

In 1973, oil prices had more than doubled in the space of a month. Oil occupied a much more central place in the economy, it said.

Moreover, inflation was already rising before the oil shock, while the global economy is now emerging from a long phase of low inflation.

But the BIS also highlighted other points of vulnerability, including the current high level of private and public debt.

And with Russia's war in Ukraine, inflation this time is not only based around oil, but also other sources of energy, agricultural raw materials, fertilizers and metals.

The most pressing challenge for central banks is therefore to bring inflation down to low levels, according to the BIS.

High inflation situations tend to be self-reinforcing, warned the BIS, especially when wages spiral into an attempt to offset rising prices.

Agence France-Presse

US Fed signals 3 rate hikes in the cards in 2022 as inflation fight begins

The Federal Reserve said it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022 as the economy nears full employment and the US central bank copes with a surge of inflation.

"The economy no longer needs increasing amounts of policy support," Fed Chair Jerome Powell said in a news conference in which he contrasted the near-depression conditions at the onset of the coronavirus pandemic in 2020 with today's environment of rising prices and wages and rapid improvement in the job market.

The pace of inflation is uncomfortably high, he said after the end of the Fed's latest two-day policy meeting, and "in my view, we are making rapid progress toward maximum employment," a combination of circumstances that has now convinced all Fed officials, even the most dovish, that it is time to exit more fully the pandemic policies put in place two years ago.

The scenario laid out by the central bank in its new policy statement and economic projections envisions the pandemic, despite the spread of the Omicron variant, giving way to a particularly benign set of economic conditions - a "soft landing" in which inflation eases largely on its own, interest rates increase comparatively slowly, and the unemployment rate is pinned to a low 3.5 percent level for three years.

Some analysts were skeptical.

"This is a forecast that implicitly has favorable developments that allow them to leave accommodation but get favorable inflation," said Vincent Reinhart, chief economist at Dreyfuss & Mellon, noting that the three-year rate hike cycle projected by Fed officials never reaches levels that would be considered restrictive, yet inflation is still expected to fall.

"Is that the way to bet?" he said.

The core of Fed officials thinks so. In their new economic projections, policymakers forecast that inflation would run at 2.6 percent next year, an increase over the 2.2 percent they projected in September, but then fall to 2.3 percent in 2023 and 2.1 percent in 2024.

Unemployment is seen dropping to 3.5 percent next year, well below the point Fed officials feel is sustainable in the long run, and remaining there through 2024.

As a result of that combination of rising prices and strong employment, officials at the median projected the Fed's benchmark overnight interest rate would need to rise from its current near-zero level to 0.90 percent by the end of 2022. That would kick off a hiking cycle that would see the policy rate climb to 1.6 percent in 2023 and 2.1 percent in 2024 - still loose by most estimates.

Dropped from the latest policy statement was any reference to inflation as "transitory," with the Fed instead acknowledging that price increases had exceeded its 2 percent target "for some time."

Annual inflation has been running at more than double the Fed's target in recent months.

To open the door to higher borrowing costs, the Fed announced it was doubling the pace of its bond-buying taper, putting it on track to end the purchases of Treasuries and mortgage-backed securities (MBS) by March. Until recently, the central bank had been buying $120 billion of Treasuries and MBS each month to help fuel the economic recovery.

US stocks closed higher, with the S&P 500 gaining more than 1.6 percent, while yields on Treasury securities were also up. The dollar initially strengthened after the release of the Fed statement and projections before surrendering the gains to trade lower on the day against a basket of major trading partners' currencies.

Traders in interest rate futures were pricing a first rate hike in May, and two more by the end of 2022.

PRICE STABILITY

Though the Fed made any rate hikes contingent on some further improvement in the job market, the new policy projections left little doubt that borrowing costs will rise next year, absent a major economic shock. All 18 policymakers indicated at least a single rate increase would be appropriate before the end of 2022.

All told, the new projections and policy statement began to pin down the central bank's plan to exit the extraordinary monetary policy put in place in the spring of 2020 to nurse the economy through the fallout of the pandemic.

The health crisis is still underway, the Fed acknowledged, with the new variant adding to uncertainty about the course of the economy.

Powell, for example, told reporters that he would like to know how the US labor market will function after people are free of healthcare, childcare and other pandemic worries, but "it doesn't look like that is coming anytime soon."

Yet he also downplayed Omicron's potential economic risks, saying he did not expect the Fed would have to resume emergency bond purchases or take other steps to counter any fresh COVID-19 wave, and that economic performance would be less and less influenced by the pace of coronavirus infections.

Fed officials projected US economic growth of 4.0 percent next year, an increase over the 3.8 percent forecast in September and more than double the economy's underlying trend.

In some of his most pointed comments about inflation yet, Powell said that sharply rising prices had now emerged as a bigger threat to jobs than the pandemic.

"What we need is another long expansion," he said. "That's what it would really take to get back to the kind of labor market that we'd like to see, and to have that happen we need to make sure that we maintain price stability."

-reuters-

For the world economy, a grim slog tempered by new hopes

Nearly a year into a pandemic that has ravaged the global economy like no time since the Great Depression, the only clear pathway toward improved fortunes is containing the virus itself.

With the United States suffering its most rampant transmission yet and with major nations in Europe again under lockdown, prospects remain grim for a meaningful worldwide recovery before the middle of next year and far longer in some economies. Substantial job growth could take longer still.

A significant hope has emerged this month in the form of three vaccine candidates, easing fears that humanity could be subject to years of intermittent, wealth-destroying lockdowns. But significant hurdles remain before vaccines restore any semblance of normalcy. More tests must be conducted and vast supplies manufactured. The world must navigate the complexities of distributing a lifesaving medicine amid a surge of nationalism.

The very concept of normalcy now seems open to question. Even after the coronavirus is tamed into something familiar and manageable like the flu, will people habituated to keeping their distance from others return to restaurants, shopping malls and entertainment venues in the same numbers? With videoconferencing established as a replacement for business travel, will companies shell out as much as before to put them on airplanes and in hotels?

Calculating the prospects for a vigorous economic recovery entails wrestling with questions of human nature. The Depression imprinted a generation with a tendency toward thriftiness and an aversion to risk. If frugality endures this time, that would have profound and enduring economic consequences; consumer spending typically makes up two-thirds of economic activity in countries like the United States and Britain.

“If you’re a business, you might be a bit more wary about taking on staff again,” said Ben May, a global economist at Oxford Economics in London. “You might make do with overtime for a while. Households might behave more cautiously. If that’s the case, you run the risk of economic scarring further down the line.”

Long-term damage on top of the recent economic devastation would add to the inequality that has been a central feature of recent decades, as people with greater education, advanced skills and access to stock and real estate markets harvested the winnings of expansion, while others struggled.

The pandemic has made the world more so. It has concentrated its lethal force on blue-collar workers, for whom human interaction is a necessity, striking people who labor in warehouses, slaughterhouses and front-line medical facilities. Professionals able to work from home have maintained their safety along with their incomes.

The industries that face the greatest challenges in recovering — airlines, hotels, restaurants and retail — are major employers of lower-skilled workers and especially women.

At a time when companies are under pressure to make their workforces more diverse, the likelihood that many people will continue working from home threatens to impede entry and promotion for women and minorities. Breaking into established ranks and altering culture is not a process best conducted over Zoom.

That could limit economic dynamism. “Growing inequality is terrible for economies because consumption is reduced,” said Ian Goldin, a professor of globalization and development at Oxford University and author of “Terra Incognita: 100 Maps to Survive the Next 100 Years.” “A smaller share of your economy is able to buy your goods and services.”

What has been challenged most directly is the popular notion that the world economy could simply endure a deep freeze to contain the pandemic and then revive, almost as if nothing had happened. The idea was that public largesse could support workers and keep businesses alive during the short, sharp downturn required to choke off the virus, before commercial life recovered.

This sort of thinking was the basis for forecasts of a so-called V-shaped recovery: The astonishing collapse of major economies in the first half of the year was supposed to be followed by an equally astonishing revival.

But the global economy does not come with an on-off switch. After marked improvement in the late summer, the surge of virus cases has destroyed the hopeful scenario. The strains of the catastrophe — from failed businesses and elevated joblessness to disrupted education — appear likely to endure, potentially for years.

When the novel coronavirus first captured attention in China early this year, it prompted grave worries about a global shock. China was the world’s second-largest economy and a voracious purchaser of goods and services, from raw materials like soybeans and iron ore to the latest gadgets from Apple. Its factories produced electronics and apparel, chemicals and construction supplies, auto parts and appliances. Disruption in China was certain to ripple outward.

The threat intensified as the virus spread to Europe, shutting down commercial life in Italy’s industrial heartland and then spreading to factories across the continent. As the pandemic assailed Europe and then North and South America, governments ordered businesses closed to halt the virus. The economic unraveling proved more intense than the global financial crisis of a dozen years earlier.

World leaders drew on the playbook from that episode, unleashing trillions of dollars of credit via central banks and direct government spending. European nations effectively nationalized payrolls to prevent layoffs. The United States delivered expanded unemployment benefits. All of this eased fears of a cascading run of bankruptcies and a potential financial crisis.

After initially covering up the epidemic, China mobilized aggressively to contain it. Its factories roared back to life, and its 1.4 billion people resumed spending, making China a rare engine of growth in the world economy.

In Europe, the apparent containment of the virus in the summer months along with the lifting of government restrictions prompted people to emerge from their bunkers, taking holidays, going out to eat and generating optimism for a recovery.

Between July and September, most major economies expanded dramatically. The United States grew more than 7% compared with the previous quarter and Germany by more than 8%. The United Kingdom expanded by nearly 16% and France by a whopping 18%. Such performances were embraced by some as proof that economies would snap back as soon as the virus was gone.

Conditions appeared ripe for robust spending. Unlike in the aftermath of the global financial crisis, when households were contending with crippling debts — especially in the United States — many households in large economies are this time flush with cash, given the enforced savings regimen of the lockdowns.

“You have a lot of pent-up money,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo, Norway. “This is definitely a scenario for a rebound.”

Yet the exuberance of the summer also appears to have rendered the populace vulnerable. The French thronged cafes, and Britons returned to the pubs. Americans disdained masks as a supposed affront to civil liberties. The virus commenced spreading, triggering a new round of lockdowns that have destroyed hopes of recovery this year.

Most economists assume that Europe will register a contraction over the last quarter of the year. Britain’s economy is expected to shrink by more than 11% this year, according to Oxford Economics, and will struggle to mount a full recovery before 2022. Among the worst-performing major economies is India; its economy contracted 7.5% in the three months that ended in September compared with a year earlier, government figures showed Friday.

The world economy will contract by 4.4% this year, the International Monetary Fund forecast in its most recent assessment. World trade is on track to fall by as much as 9% this year, according to an assessment from the United Nations Conference on Trade and Development.

Next year, the world economy is expected to grow by 5.2%, according to the IMF, but that would still leave it only 0.6% larger than in 2019. Joblessness would remain elevated. Poor countries would continue to suffer a drop in earnings sent home by migrant workers. Malnutrition would climb.

In the United States, the defeat of President Donald Trump by Joe Biden has yielded optimism that a sustained and serious attack on the pandemic will now be waged. But the prospect that the incoming administration will be constrained by Republican control of the Senate — pending a pair of runoff elections in Georgia — reduces the likelihood that the government will agree on a robust package of spending measures to stimulate the economy.

Questions about next year center on how soon vaccines reach the bloodstream of the masses. The three candidates so far, from Pfizer, Moderna and AstraZeneca, have produced a credible vision of an end to the agony. But the economic pain has become so intense that its effects may linger.

The infusions of relief from central banks have propped up solid and flimsy companies alike. Many of the weak will eventually succumb, especially as aid is withdrawn, costing jobs. The pandemic has accelerated a pushback against globalization that may inspire multinational companies to make more goods in their home markets while cutting costs through automation — limiting job and wage growth.

Poor and developing countries went into the pandemic facing alarming levels of debt. Promised aid from international institutions like the IMF and the World Bank have proved disappointing. Private creditors have withheld debt relief.

Some argue that the pandemic should be the impetus for new economic models that create jobs through a transition to green energy while spreading the gains more equitably.

“What I’m allergic to at the moment is the notion of going back, bouncing back,” Goldin said. “It’s business as usual that got us to where we are.”

-The New York Times-

World facing bankruptcy time bomb: study

PARIS - Governments around the world are scrambling to save companies battered by coronavirus lockdowns but the world is nevertheless facing a massive surge in bankruptcies by a third, a study conducted by a trade insurance firm said Monday.

"COVID-19 is creating an insolvency time bomb," said the report by Euler Hermes, predicting a 35-percent cumulative jump in the number of companies that go bust between 2019 and 2021.

The firm, which provides insurance for trade deals, said this would be a record for its global insolvency index -- and that about half of the countries worldwide would be setting new highs since the 2009 financial crisis.

The biggest increase among the world's economic powerhouses will be in the United States, with a 57 percent jump in insolvencies in 2021 compared to 2019, before the coronavirus struck.

Bankruptcies are expected to soar by 45 percent in Brazil, 43 percent in Britain, and 41 percent in Spain.

China is forecast to see a 20 percent surge in bankruptcies.

In the United States, "the rapid spread of the virus is amplifying the trough in activity and generating a liquidity crisis for a larger set of companies", said the report.

"We do not expect the U-shaped recovery in the US to be sufficient to offset all the legacies of the crisis on financial metrics, nor to prevent the rise in insolvencies from continuing into 2021," it added.

The insolvencies are disruptive as other firms are left unpaid or forced to scramble to find new, often more expensive suppliers.

"The larger the company filing for bankruptcy, the higher the risk of a domino effect," said the report.

Euler Hermes also warned of two scenarios in which bankruptcies could jump even higher.

A premature withdrawal of supportive economic and policy measures could push the rise in insolvencies to 40-45 percent.

"And if the global economic recovery takes longer than expected, the surge" in insolvencies could rise to as high as 85 to 95 percent, it added.

Agence France-Presse

COVID crisis sinks global economy in 2020, collapsing GDP 4.9 percent: IMF

WASHINGTON - The global coronavirus pandemic has sparked an economic "crisis like no other," sending world GDP plunging 4.9 percent this year and wiping out $12 trillion over two years, the IMF said Wednesday.

Worldwide business shutdowns destroyed hundreds of millions of jobs, and major economies in Europe face double-digit collapses.

The prospects for recovery post-pandemic -- like the forecasts themselves -- are steeped in "pervasive uncertainty" given the unpredictable path of the virus, the IMF said in its updated World Economic Outlook.

"The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast," the fund warned.

While businesses are reopening in many countries and China has seen a bigger rebound in activity than expected, a second wave of viral infections threatens the outlook, the report said.

World GDP is expected to rebound by just 5.4 percent in 2021, and only if all goes well, the IMF warned.

IMF chief economist Gita Gopinath said under current forecasts, the crisis will destroy $12 trillion over two years, and cautioned, "we are not out of the woods." 

"Substantial joint support from fiscal and monetary policy must continue for now," Gopinath said in a blog post.

The downturn is particularly damaging for low-income countries and households, and threatens to endanger the progress made on reducing extreme poverty, the Washington-based crisis lender said in its report.

The fund made drastic downward revisions to most of the April forecasts made in the early days of the pandemic, and IMF economists fear the coronavirus will leave lasting scars on employment, businesses and trade.

Hanging over the predictions is the bill for massive government stimulus plans, which were fueled by extremely low interest rates and likely prevented the recession from turning into a depression even as they created huge and ever-increasing debt levels.

The damage is nonetheless stunning, and more widespread than any downturn in recent decades. The recession in many major economies will be more than double that suffered during the global financial crisis in 2009, which came as major developing economies like China, India and Brazil were booming.

China will eke out growth of one percent this year, the only positive figure on the long list of key economies the IMF tracks.

The United States will shrink eight percent and Germany slightly less, while France, Italy, Spain and Britain will suffer double-digit contractions. Japan makes out a bit better with a drop of just 5.8 percent, according to the forecasts.

Mexico also will see a double-digit decline while Brazil just misses that mark, as does Argentina, which is in the middle of a massive debt crunch on top of its health and economic crises after the country once again defaulted on its foreign obligations.

The IMF pointed to International Labour Organization data estimating more than 300 million jobs were lost in the second quarter of the year.

The "sizeable" flood of government funds to support workers and businesses "have forestalled worse near-term losses," but the IMF urged countries to avoid a situation where aid is "prematurely withdrawn or improperly targeted" since that could worsen the economic damage.

"A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment," the fund warned.

With transport and manufacturing shut down for weeks, the IMF projects global trade volume will collapse by just under 12 percent -- and advanced economies will see an even more dramatic drop.

The IMF also warned of dangers posed by eroding relations between and within countries.

"Beyond pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organization of the Petroleum Exporting Countries (OPEC+) coalition of oil producers and widespread social unrest pose additional challenges to the global economy," the report said.

Trade disruptions could undermine productivity as firms shift supply chains to try to protect themselves against future breakdowns, and companies also face higher costs as they adopt enhanced cleaning procedures and social distancing requirements.

Amid the uncertainty, there is a chance the recession could be less severe than forecast, the report said.

"Downside risks, however, remain significant," it warned.

Agence France-Presse

Equities stutter on economy, second wave fears

HONG KONG - Equities and oil sank Friday while the dollar rallied as investors ran for the hills following the worst Wall Street rout since March, fuelled by worries about the economic recovery and a second virus wave in the US.

And the magnitude of the financial earthquake caused by the crisis was brought home by data showing the British economy shrank 20.4 percent month-on-month in April.

World markets have blasted higher since hitting a deep trough three months ago, supported by trillions of dollars in government and central bank help and an easing of lockdown measures.

But the optimism on trading floors was shattered Wednesday when Federal Reserve boss Jerome Powell signalled the world's top economy would take some time to bounce back from the crisis.

While his comments, and the bank's decision to keep interest rates at near zero for at least two years, was expected, the dose of reality jolted traders.

That coincided with figures showing a spike in new infections in key states including Texas, California, Arizona and Florida, which fanned concerns of a new wave as the nation slowly reopens.

However, Treasury Secretary Steven Mnuchin said there would be no more shutdowns, telling CNBC: "I think we've learned that if you shut down the economy, you're going to create more damage."

"Investors have been arguing in recent weeks that the stock market performance and economic reality have been disconnected, wondering when reality might hit the market," said JP Morgan Asset Management strategist Tai Hui. 

"The fear of a rising rate of COVID-19 infections is the most important driver in our view for this sell-off."

Hong Kong, Sydney, Mumbai, Singapore, Jakarta and Bangkok all fell between one and two percent while Wellington and Seoul were more than two percent lower. Tokyo finished 0.8 percent lower and Shanghai was slightly off.

London opened more than one percent lower after the GDP figures were released, while Paris and Frankfurt were also lower.

Still, the losses were shallower than earlier in the day and much lighter than on Wall Street on Thursday, where all three main indexes were routed.

The correction that was needed?

Analysts also blamed profit-taking after the huge run-up since March, which has seen some indexes rise more than 50 percent, with many saying investors had run ahead of themselves on hopes for a V-shaped recovery.

"There is an argument to be made that equities were due a decent correction in light of the gains made in the past three months," said David Madden of CMC Markets.

"On the other hand, economies can't stay locked down forever so a jump in the infection rate is going to be the cost of trying to get things back to normal."

The world equities retreat was reflected in oil markets, with both main contracts tumbling more than eight percent Thursday, hit by uncertainty over demand and data showing a jump in US stockpiles.

And the losses continued into Friday, weighing on energy giants in the region.

The dollar, under pressure for weeks owing to the huge Fed easing measures and the return of risk-taking, rallied as investors sought its safe-haven status. The greenback was up more than one percent against the Canadian, Australian and New Zealand dollars as well as Indonesia's rupiah.

It also jumped more than two percent against the Mexican peso and South African rand.

"Who knows whether this is just the 'correction we had to have' or the start of something more serious," said National Australia Bank's Ray Attrill.

"Certainly though, we don't doubt the ongoing power of central bank policy actions -- from the Fed in particular -- in continuing to place a floor under risk assets relative to the underlying economic fundamentals on which stock prices are supposed to be based."

Agence France-Presse

IMF chief lauds Japan's spending to combat pandemic, urges others to step up

WASHINGTON -- IMF chief Kristalina Georgieva on Thursday lauded Japan's plans to spend about 20 percent of its gross domestic product to respond to the economic challenges of the coronavirus pandemic and help the world's poorest countries, urging others to do their part.

Japan, the world's third largest economy behind the United States and China, was the largest contributor to IMF financial resources and the largest contributor to the fund’s concessional lending facilities, Georgieva said in a statement.

"While it has the clear intention to support the Japanese economy, Japan will also underpin the stability of the global economy through contributions to the International Monetary Fund’s resources for the provision of debt relief and concessional financing to low-income countries," she said.

The IMF this month forecast the global economy will contract by 3 percent due to the pandemic, in what would be the worst economic downturn since the Great Depression of the 1930s.

IMF and World Bank officials have repeatedly warned that the world's poorest countries will be particularly hard hit by the pandemic because they lack the resources and infrastructure to respond to the resulting health and economic challenges.

"It is therefore crucial that the membership work together to support our poorest and most vulnerable members in this difficult period," Georgieva said in the statement.

She said Japan had provided close to 9 billion in Special Drawing Rights (SDR), the IMF's currency, to date to the Poverty Reduction and Growth Trust, which amounted to 23 percent of all PRGT loans, and over SDR 900 million in subsidy grant resources.

"I urge other member countries to contribute to both the (Catastrophe Containment and Relief Trust) and PRGT. By working together, we can overcome the global challenge facing us and help restore growth and prosperity,” she said.

Funded by grants from members, the CCRT has already provided grants to 29 countries to cover their debt service payments to the IMF for an initial six-month period, according to the IMF. Members can also provide grants and loans to the PRGT, which supports low-income countries.

Washington has been noticeably absent from the relief drive.

US Treasury Secretary Steven Mnuchin this month told the IMF's steering committee that Washington was exploring contributions to both facilities, but gave no details on the amount or timing of such a contribution.

Also contributing to the CCRT are Britain, Germany, the Netherlands, Singapore and China, while Japan, France, Britain, Canada and Australia have all pledged contributions to the PRGT.

Japan this month said it aimed to double its contribution to the PRGT from the current SDR 3.6 billion, saying it would make the first SDR 1.8 billion available immediately, with the rest to follow as other member countries upped their contributions.

-reuters-

Coronavirus pandemic battering global economy: surveys

PARIS/WASHINGTON -- Business activity collapsed from Australia, Japan and Western Europe to the United States at a record pace in March as measures to contain the coronavirus pandemic hammer the world economy, cementing economists' views of a deep global recession.

The highly contagious coronavirus, which causes a respiratory illness called COVID-19, has caused entire regions to be placed on lockdown and in some places soldiers are patrolling the streets to keep consumers and workers indoors, halting services and production and breaking supply chains.

"The global health crisis is rapidly morphing into a global recession, as there is a clear tension between preventing infections and ruining the economy," said Edoardo Campanella, an economist at UniCredit Bank in Milan. "However, a wise policy coordination between health and fiscal authorities should allow a V-shaped recovery once containment measures are relaxed."

Data firm IHS Markit said on Tuesday its flash US Composite Output Index, which tracks the manufacturing and services sectors, dropped to a reading of 40.5 this month. That was an all-time low and followed a reading of 49.6 in February.

Last month's decline in the index, which is seen as a good measure of economic health, was the largest in the series' history. A reading below 50 indicates contraction in business activity. The survey underscored the rapidly deteriorating economy, highlighted last week by a government report showing the biggest rise since 2012 in the number of Americans filing claims for unemployment benefits during the week ended March 14.

Economists are predicting claims will accelerate to a record 1.5 million or more when data for last week is published on Thursday.

The message was equally grim from the 19 countries that use the euro. IHS Markit's flash composite PMI for the euro zone plummeted to a record low of 31.4 in March.

That was by far the biggest one-month fall since the survey began in mid-1998 and below all forecasts in a Reuters poll which gave a median prediction of 38.8.

In France, services activity fell to a record low and manufacturing saw its steepest drop since the global financial crisis more than a decade ago.

A PMI for the services sector in Germany, Europe's largest economy, showed a record contraction in activity, while sister surveys showed Britain's economy shrinking at a record pace.

IHS Markit said the March figures suggested the euro zone economy was shrinking at a quarterly rate of around 2 percent, and the escalation of measures to contain the virus could steepen the downturn.

With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot. But some analysts say infinite monetary policy easing may not be enough and fiscal steps are crucial.

There was some optimism on that front, with senior Democrats and Republicans saying on Tuesday they were close to reaching a deal on a $2 trillion stimulus package to aid the US economy.

Hopes for a large fiscal stimulus sparked a sharp rebound in global stock markets, with the Dow Jones raking up its biggest one-day percentage gain since 1933.

EXTRAORDINARY MEASURES

After an initial outbreak in China brought the world's second-largest economy to a virtual halt last month, an ever-growing number of countries and territories have reported a spike in infections and deaths, leading to "social distancing" policies aimed at containing the spread of COVID-19.

Goldman Sachs is predicting that the global economy will shrink 1 percent this year, with gross domestic product in China estimated to contract at a 42 percent annualized rate in the first quarter and GDP in the United States dropping at a record 24 percent rate in the April-June period.

"The coronacrisis has pushed the world economy into a deep recession," said Goldman Sachs chief economist Jan Hatzius. "The response to that crisis represents a physical constraint on economic activity that is unprecedented in postwar history."

The bleak US economic picture ahead of the November presidential election has prompted President Donald Trump to push for businesses to reopen by Easter. Given rising infections and death toll, health experts, economists and politicians have cautioned against such a move, which they say could backfire, with Americans remaining fearful of going out.

Trump and Vice President Mike Pence held a conference call with major Wall Street investors on Tuesday.

"Sending the public back to work at this time would be premature," said Joe Brusuelas, chief economist at RSM in New York. "The US is better off taking a one-time hit to economic growth, as efforts to terminate the virus continue, rather than run the risk of multiple economic shutdowns."

Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of dollar funding threatening to cripple firms from airlines to retailers.

PMI surveys from Japan showed the services sector shrinking at its fastest pace on record this month and factory activity contracting at its quickest in a decade.

This was consistent with a 4 percent contraction in 2020, Capital Economics senior economist Marcel Theliant said. The postponement of the Tokyo Olympics is expected to deal a heavy blow to the world's third-largest economy.

The US Federal Reserve on Monday promised bottomless dollar funding and an array of programs to help keep companies afloat. For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and "soon" will roll out a program to get credit to small and medium-sized businesses. It will also expand its asset purchases by "as much as needed."

The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, US Treasury debt and foreign dollar funding markets functional.

G7 finance ministers and central bank governors on Tuesday pledged to expand fiscal and monetary actions for as long as necessary to restore growth and confidence.

With the International Monetary Fund predicting a global recession, the world's 20 largest economies agreed on Monday to develop an "action plan," but without specifics.

source: news.abs-cbn.com

Global economy already in recession due to COVID-19: Reuters poll

BENGALURU -- The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread, according to economists polled by Reuters amid a raft of central bank stimulus actions this week.

The spread of the disease caused by the virus, COVID-19, has sent financial markets into a tailspin despite some of the biggest emergency stimulus measures since the global financial crisis announced by dozens of central banks across Europe, the Americas, Asia and Australia.

The panic was clear in stocks, bonds, gold and commodity prices, underlining expectations of severe economic damage from the outbreak.

More than three-quarters of economists based in the Americas and Europe polled this week, 31 of 41, said the current global economic expansion had already ended, in response to a question about whether the global economy was already in recession.

"Last week we concluded that the COVID-19 shock would produce a global recession as nearly all of the world contracts over the three months between February and April," noted Bruce Kasman, head of global economic research at JP Morgan.

"There is no longer doubt that the longest global expansion on record will end this quarter. The key outlook issue now is gauging the depth and the duration of the 2020 recession."

Economists have repeatedly cut their growth outlook over the past month and have increased their forecast probabilities for recession in most major economies.

The worst-case views on growth taken just weeks ago in some cases have already into the central scenario for private sector economists in Reuters polls.

"The evolving news on COVID-19 has triggered 'forecast leap frogging,' with economists and strategists repeatedly lowering their forecasts. Among the big 3 economies, the US and the euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5 percent," said Ethan Harris, head of global economics at BofA.

"Our first piece on the virus shock was titled 'bad or worse'; now we amend that to 'really bad or much worse.' We now expect COVID-19 to cause a global recession in 2020, of similar magnitude to the recessions of 1982 and 2009."

The global economy was forecast to expand 1.6 percent this year, about half the 3.1 percent predicted in the January poll, and the weakest since the global financial crisis of 2007-09. Forecasts for 2020 global GDP ranged from -2.0 percent to +2.7 percent.

"As cases of coronavirus spiral upward, disruptions to the global economy are increasing. We have cut our global GDP growth forecast to 1.25 percent for the year - less severe than the deep recessions of 1981-82 and 2008-09, but worse than the mild recessions of 1991 and 2001," noted Goldman Sachs' economics research team.

"Consistent with this, our economists now expect recessions in Europe, Japan, Canada and possibly the United States."

The US economy was almost certain to enter a recession this year, if it is not in one already, according to a poll published on Thursday and taken after the Federal Reserve's emergency move on Sunday.

"The US economy is going to have a shock from this coronavirus and I think that there's still a lot of uncertainty around the size and the depth and the prolonged period of the shock," said Tiffany Wilding, North American economist at Pacific Investment Management Co (PIMCO).

"We're still getting our heads wrapped around that. We think it's quite likely that the US has a small technical recession this year."

As for the world's second largest economy, China, where the virus outbreak originated, a Reuters poll published on March 6 showed the outlook was once again cut significantly for this quarter, next quarter, and for 2020.

Since then, economists have been slashing their forecasts even more.
The economic damage from the outbreak was predicted to reverberate through other major economies in Asia too, with most forecast to slow significantly, halt or shrink outright in the current quarter according to a Feb. 26 Reuters poll.

Japan's economy, which already contracted sharply toward the end of 2019, was expected to grow only 0.1 percent in the new fiscal year that begins in April, a March 6 Reuters survey found, revised down from 0.5 percent projected in February.

Following the rapid spread of virus infections from China to other countries, including Europe, the risk of a euro zone recession doubled in a poll taken earlier this month.

It was not very different for the UK, where the Bank of England cut rates to near-zero on Thursday and re-started its asset purchases.
The British economy was expected to expand 0.1 percent this quarter and then contract 0.3 percent next quarter, a sharp revision from the 0.3 percent expansion they had expected before for both the quarters in the previous poll.

In a worst case scenario, the economy was forecast to contract 1 percent next quarter and by 0.7 percent in 2020. Forecasts were as low as -5 percent and -3 percent, respectively, with no economist expecting growth in either period in the worst case.

source: news.abs-cbn.com

OECD cuts 2020 global growth outlook on coronavirus outbreak

TOKYO - The Organization for Economic Cooperation and Development on Monday lowered its forecast for global economic growth this year, citing the impact of the new coronavirus epidemic on the manufacturing and travel sectors.

The world's gross domestic product is likely to expand a real 2.4 percent in 2020, down from an earlier forecast of 2.9 percent released in November and 2.9 percent growth in 2019, the OECD said in its latest economic report.

The latest estimate was based on the assumption that the epidemic would peak in China in the first quarter of 2020 and outbreaks in other countries would prove mild, according to the interim report for a biannual OECD economic assessment.

"The coronavirus (COVID-19) outbreak has already brought considerable human suffering and major economic disruption," the OECD said. "Output contractions in China are being felt around the world, reflecting the key and rising role China has in global supply chains, travel and commodity markets."

In the event of "a longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America," global growth this year could drop to 1.5 percent, the Paris-based organization said, adding that the prospects "remain highly uncertain."

Meanwhile, global GDP in 2021 is expected to expand 3.3 percent, up from a forecast in November of 3.0 percent, if the effects of the virus outbreak fade as assumed under the optimistic scenario, the report said.

By country, economic growth in China, the epicenter of the COVID-19 outbreak, is projected at 4.9 percent in 2020, lower than the previous forecast of 5.7 percent and the 6.1 percent expansion logged in 2019. The world's second-largest economy is projected to grow 6.4 percent in 2021, up from 5.5 percent forecast earlier.

The report said "the adverse impact on confidence, financial markets, the travel sector and disruption to supply chains" contributed to downward revisions for all Group of 20 major economies this year, particularly "Japan, Korea and Australia" that are strongly interconnected with China.

The organization cut its forecast for Japanese economic growth to 0.2 percent in 2020 from its previous estimate of 0.6 percent but left unchanged its 2021 outlook at 0.7 percent. Japan logged growth of 0.7 percent in 2019.

South Korea and Australia are expected to register economic growth of 2.0 percent and 1.8 percent this year, down 0.3 percentage points and 0.5 percentage points, respectively, from previous projections.

The U.S. economy, which grew 2.3 percent last year, is expected to see a limited impact from the virus, with growth in 2020 cut to 1.9 percent from the November forecast of 2.0 percent.

Growth in the eurozone is projected at 0.8 percent in 2020, down from an earlier estimate of 1.1 percent.

source: news.abs-cbn.com

The big shortcoming: A grumpy 2020 for global growth

PARIS -- US political clouds coupled with wider climate and digital transformations point to a tricky 2020 for the world economy, although experts say a lurch back to crisis is improbable.

The Organisation for Economic Cooperation and Development said last month that activity had been hobbled by weaker trade and investment in the past two years, as US President Donald Trump pursued a trade war with China.

The OECD expects global growth to dip in the coming year to 2.9 percent, its lowest level since the world recession of 2009.

Trump appears to have struck a truce with China for now, under a "phase one" pact announced this month, but pre-existing tariffs remain in place and it will take time to demobilize their effects.

More broadly, the OECD contrasted proactive actions taken by central banks with the policy foot-dragging by governments in the face of climate change and the march of technology.

Industrialists and investors are having to correct their climate strategies even as Trump sits firm in his policy of denial. Oil giant Saudi Aramco recently had to trim back the volume of its gigantic share offering.

The International Monetary Fund was a little more optimistic in its latest World Economic Outlook, forecasting 2020 growth of 3.4 percent but warning nevertheless of a "synchronized slowdown and uncertain recovery".

At a time of populism and protests around the world, politics will remain an economic wild card next year.

Trump heads into the November presidential election under an impeachment cloud, and Britain's Brexit divorce from the European Union will likely be sealed next month, following Prime Minister Boris Johnson's election triumph.

The rise of technological giants sitting on mountains of data is meanwhile challenging the distribution of wealth between governments and big business, and has the potential to reshape the world of work as artificial intelligence exploits that data.

The online arena has emerged as another front for Trump's trade wars, after he threatened tariffs on France over its digital tax imposed on the likes of Amazon, Facebook and Google. Europe is threatening a collective response.

BETWEEN HEAVEN AND HELL

Ludovic Subran, chief economist of German insurance giant Allianz, sees a global "purgatory of growth" coming up.

Any systemic shock next year "will probably not be born in finance, but will be exogenous, for example a big regulatory shock on personal data, or in relation to the climate", he said.

If Trump survives the impeachment process and wins a second term, he could "double the bet against China" at the risk of military confrontation, Subran added.

Trump and his potential challengers on the Democratic left are united in their hostility to the free-trade and liberalization agendas that, they argue, hollowed out industrial America over the past decades. 

The mistrust is felt well beyond the United States.

"We're not worried about how to overcome a cyclical crisis, we know what to do," said Ingo Kuebler, the staff representative at Mahle, a German automotive supplier that has already been forced to downsize as car buyers turn away from diesel engines.

"The big issue is transformation, digitalization, electric mobility," he told AFP, fretting that an influx of cheap Chinese car batteries means "we are dreading the loss of many jobs".

THE BIG INCOME GAP

Since the financial crisis a decade ago, central bank policies have led to negative interest rates spreading in some countries, squeezing bank profitability and inflating private debt.

With growth faltering, the debate about wealth distribution will likely become still more acute. Anger at inequality runs like a thread through protest movements from rich Hong Kong to developing Chile.

In 2018, according to Oxfam, 26 billionaires had as much money as the poorest half of the world. 

"Even when people seem to enjoy basic material comfort, they may still experience the same level of misery and unhappiness as the poorest," French academic Esther Duflo said in October after she won the Nobel Prize in economics.

US investor Steve Eisman of "The Big Short" fame thinks that another global crisis is unlikely, but the best that can be hoped for is a slow strangulation of growth.

"What will happen next time, whenever it does happen, will be your normal garden variety of recession where the economy slows and goes negative and people lose money. That'll be painful enough," Eisman told AFP.

"A systemic crisis? Once was enough for our lifetimes," he said, reflecting back on the implosion of 2007-2008 that made hundreds of millions for his hedge fund when he correctly foretold the US subprime collapse. 

The prescient strategy of Eisman and other investment mavericks was recounted in a book by journalist Michael Lewis and subsequent Oscar-winning movie.

Agence France-Presse

World stock markets rally on hopes for stimulus, trade progress

NEW YORK -- Global stocks rallied Monday on rising optimism about stimulus measures in China and Germany as investors welcomed more conciliatory signs in the long-running US-China trade war.

Germany's central bank, the Bundesbank, warned that Europe's biggest economy could enter a recession in the third quarter, a statement that further fueled expectations that a stimulus program would be coming.

Market watchers also expect further stimulus measures by China to boost growth and are confident Federal Reserve Chair Jerome Powell will communicate dovish direction at a big central bank gathering at the end of the week in Jackson Hole, Wyoming.

Analysts also cited the Trump administration's decision to delay by 90 days a ban on US companies doing business with Huawei, seen as a conciliatory step in the running US-China trade fight and coming on the heels of statements from US President Donald Trump and other top administration officials emphasizing efforts to revive talks with Beijing.

"The market is looking at the positives out there," Manulife Asset Management's Nate Thooft told AFP, adding that the low trading volumes in the sleepy August period have sharpened market swings in recent sessions.

Major US indices gained more than one percent after European and Asian bourses earlier also finished solidly higher.

Germany's DAX index jumped 1.3 percent in spite of the downcast report from the central bank.

"The economy could contract again slightly" this summer, Germany's central bank said in its monthly report, following a 0.1-percent decline in gross domestic product (GDP) in the second quarter.

"According to data currently available, industrial production is expected to shrink markedly in the current quarter as well."

As US-China tensions intensify, economists have urged Berlin to fork out cash to avoid a recession, but Chancellor Angela Merkel's government has previously said things were not yet bad enough to warrant loosening the purse strings.

On Sunday, German Finance Minister Olaf Scholz hinted at a potential intervention, stating that Germany could "fully face up to" a new economic crisis.

"It is sometimes important, when things change completely, for example, for us to have enough strength to react," he said during an open house day at government offices.

China has meanwhile announced an interest rate reform that it said would lower borrowing costs for companies.

"The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus," said Oanda analyst Craig Erlam.

KEY FIGURES AROUND 2015 GMT (4:15 a.m. Tuesday in Manila)

New York - Dow: UP 1.0 percent to 26,135.79 (close)

New York - S&P 500: UP 1.2 percent at 2,923.65 (close)

New York - Nasdaq: UP 1.4 percent at 8,002.81 (close)

London - FTSE 100: UP 1.0 percent at 7,189.65 (close)

Frankfurt - DAX 30: UP 1.3 percent at 11,715.37 (close)

Paris - CAC 40: UP 1.3 percent at 5,371.56 (close)

EURO STOXX 50: UP 1.2 percent at 3,369.19 (close)

Tokyo - Nikkei 225: UP 0.7 percent at 20,563.16 (close)

Hong Kong - Hang Seng: UP 2.2 percent at 26,291.84 (close)

Shanghai - Composite: UP 2.1 percent at 2,883.10 (close)

Euro/dollar: DOWN at $1.1078 from $1.1090 at 2100 GMT Friday

Pound/dollar: DOWN at $1.2134 from $1.2149

Euro/pound: UP at 91.30 pence from 91.29 pence 

Dollar/yen: UP at 106.66 yen from 106.38 yen

Brent North Sea crude: UP 1.9% at $59.74 per barrel

West Texas Intermediate: UP 2.4% at $56.21 per barrel

source: news.abs-cbn.com

Global stocks tumble on tariff moves as Chinese yuan sinks

LONDON - World stock markets plunged Monday and the Chinese yuan fell sharply in reaction to US President Donald Trump vowing to impose fresh tariffs on Chinese goods in the latest trade war flare-up.

Europe's stocks dived about two percent, mirroring heavy falls in Asia -- where Hong Kong tumbled nearly three percent as it was hurt also by ongoing pro-democracy protests.

"European equity markets have been rocked by the rising trade tensions between the US and China," said IG analyst David Madden.

"There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time."

Trump's announcement late last week means virtually all of the $660 billion in annual merchandise trade between the world's two biggest economies will be subject to punitive tariffs, with the latest duties to take effect September 1.

The news saw all three major Wall Street indices slump to their lowest levels since June, with the S&P 500 and Nasdaq recording their worst weekly losses of 2019 on Friday.

On Monday, the DJIA again came off to a weaker start, losing around 400 points in the first moments of trading.

"US stocks are extending last week's largest drop of the year," noted Charles Schwab analysts.

In China, the yuan dropped to its lowest level to the dollar since August 2010, fuelling speculation that Beijing was allowing its currency to decline to support exporters and offset Trump's latest threat to hit $300 billion in Chinese goods with 10 percent tariffs.

The US leader regularly accuses the Chinese central bank of artificially weakening the yuan -- charges long denied by Beijing.

CHINA'S DIG AT TRUMP?

On Monday, the dollar soared to 7.0499 onshore yuan -- the Chinese currency's weakest level since 2008.

The dollar surged to 7.1114 offshore yuan, which is more freely traded.

"The fact the Chinese central bank allowed the yuan to fall through the 7.0 mark against the US dollar without intervening is a clear indication that Beijing means business," Madden added.

"The softness in the Chinese currency should assist domestic exporters, but it could be construed as a dig at the Trump administration."

The dollar, however, weakened against other currencies, including the euro, yen and the pound.

Beijing has vowed to hit back if Washington goes ahead with its latest threat, while news that demand for US exports had weakened underscored concern that trade was becoming a trouble spot for economies worldwide.

'A LOT MESSIER'

"China is likely to drag out their response and retaliate in many ways against the US trade measures," warned analyst Edward Moya at trading firm Oanda.

Negotiators from both nations are expected to reconvene in Washington in early September for another round of talks after last week's discussions in Shanghai, but investors remain nervous, he added.

The yuan's depreciation spurred a sell-off across Asian equity markets.

source: news.abs-cbn.com