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Your Next iPhone Might Be Made in Vietnam. Thank the Trade War

This article by Raymond Zhong for the New York Times may be of interest to subscribers. Here is a section:

Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.



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Johnson 'Confident' of Deal as Pound Falls

This summary of today’s events by Kitty Donaldson and Jessica Shankleman for Bloomberg may be of interest. Here is a section:

The pound fell more than 1% against the dollar to its lowest level since 2017 on fears of a no-deal Brexit. But Johnson insisted a deal was possible.

"We’re very confident, with goodwill on both sides, two mature political entities, the U.K. and EU, can get this done,” Johnson told a TV crew during his trip to Scotland. "It’s responsible for any government to prepare for a no deal if we absolutely have to. That’s the message I’ve been getting across to our European friends. I’m very confident we’ll get there.’’

The key point for the EU to understand is that the backstop is "dead," along with Theresa May’s withdrawal agreement, but there is "scope to do a new deal." Johnson said the U.K. government is talking to Irish government on Monday, to set out "the limits" and aims for a new deal.

And

Conservative Member of Parliament Oliver Letwin, part of a rebel group that includes some Labour MPs seeking to stop a no-deal Brexit, said his colleagues could find a way to amend legislation to prevent the U.K. leaving with no divorce agreement.

“The mechanical problems we can overcome,” Letwin told BBC radio. “The difficult thing is to get a majority in Parliament for some other course of action at the last moment if there isn’t a deal.” Letwin said there is a “natural majority” of parliamentarians against a no-deal Brexit, but whether they would vote to block it would remain unknown “right up until the last moment.”



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Foreigners Sell Rand Assets at Record Pace as Eskom Woes Mount

This article by Paul Wallace for Bloomberg may be of interest to subscribers. Here is a section:

Fitch Ratings Ltd. followed on Friday by cutting its outlook for Africa’s most industrialized economy to negative. JPMorgan Chase & Co. said the same day that a rally in the rand since the start of June was more to do with a supportive global environment than improvements in conditions locally.

“We now believe levels are stretched enough to enter outright rand shorts,” JPMorgan analysts including London-based Anezka Christovova and Robert Habib in New York said in a note. “South Africa’s fundamental picture remains very challenging with a ballooning fiscal deficit and structurally low growth.”

Citigroup Inc. recommended to clients on Monday that they short the rand against the Turkish lira. The Wall Street bank’s analysts see the latter strengthening about 7% versus the South African currency over the next three months.



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Goldman Says Asia's Trade Slump Is Showing Signs of Bottoming

This article by Enda Curran for Bloomberg may be of interest to subscribers. Here it is in full:

There are signs that Asia’s export slump is bottoming out. That’s according to Goldman Sachs Group Inc. economists who highlight a substantial pick up in exports to the U.S. from Asian economies including Taiwan, Vietnam and India that’s effectively canceling out the fall in shipments from China.
 
“Initial shocks from the trade war might be behind us, with Asian exports to China recovering and tech exports catching up with stable non-tech exports,” Goldman economists led by Andrew Tilton wrote in a note. “Also, a rebound in the Asian trade cycle seems overdue, with Asian exports undershooting trade partners’ activity growth and the current downturn being sustained longer than past cycles.”

Chinese and American trade negotiators meet again in Shanghai this week for the first round of meetings between both sides since talks broke down in May.

Even if trade tensions escalate, an expected wave of supportive measures from governments and central banks to underpin economic growth will aid the trade recovery, Goldman argues. The Federal Reserve is tipped to cut interest rates this week for the first time in a decade.

For sure, additional U.S. tariffs on Chinese goods would have an impact. “Our view is, however, that the escalation would likely be temporary ahead of an eventual trade agreement, and potential damages could be mitigated by ongoing shifts in supply chains,”

Goldman’s economists wrote. “In the event of further escalation in the trade tensions beyond our baseline, Asian trade may undergo another downturn which, if sustained for the coming year, could make the current downcycle the longest since the 1990s.”



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Starbucks Looks Like Its Old Self Again as Brisk Growth Returns

This article by Leslie Patton and Anne Riley Moffat for Bloomberg may be of interest to subscribers. Here is a section:

The strong report comes one year after longtime leader Howard Schultz retired from the chairman’s job and left the company, putting decision-making squarely in the hands of Chief Executive Officer Kevin Johnson, who’d been in the post for about a year at that point. Johnson got right to work, bringing life back to an aging brand that had started to lose its cachet among the hipper, smaller chains sprouting up in its shadow.

His playbook included closing underperforming locations in densely penetrated U.S. markets, turning over some foreign regions to licensees and revamping the chain’s loyalty program. He has also expanded food offerings to compete with trendy salad shops and found ways to launch the new drinks that Gen Z and millennial customers want, like Nitro cold brew and high-protein offerings, in as little as 100 days. In the past that may have taken up to 18 months.



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RBA Chief Says He's Ready to Ease Again, Sees Rates Staying Low

This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:

“But if demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further,” he said. “Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates. On current projections, it will be some time before inflation is comfortably back within the target range.”

Lowe’s speech, which made the case for maintaining the RBA’s current policy framework despite prolonged low inflation, was his most explicit that further easing remains on the table. The Reserve Bank cut rates in June and July to a record low of 1% and signaled at the time that it would wait to see how the easing filtered through the economy.

Since then, consumer confidence has actually fallen and the currency has risen -- the latter due to an easing bias among major central banks -- in contrast to RBA’s hopes. Indeed, the Federal Reserve is expected to cut as soon as next week. Westpac Banking Corp. Chief Economist Bill Evans on Wednesday predicted Lowe and co. would cut in October and February to push the cash rate to 0.5%.
 



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Johnson;s Acerbic Brexit Mastermind Wants a Political Revolution

This article by Joe Mayes for Bloomberg may be of interest to subscribers. Here is a section:

Since the referendum, he has retreated from public politics, offering only the occasional blog post, often thousands of words long, setting out his views about government, technology and educational systems, but especially on why he believed the government was making a mess of Brexit.

His tone was often contemptuous: Brexit Secretary David Davis was “thick as mince, lazy as a toad and vain as Narcissus.” Pro-Brexit MPs were “useful idiots” who spent their time “spouting gibberish.”

In 2018 he described Theresa May’s approach to Brexit as a “surrender” and said that Article 50 -- the divorce process with the EU -- was triggered too early, akin to “putting a gun in your mouth and pulling the trigger.’’ He said the success of Brexit won’t be known for decades, and tweeted in 2017 that there are “possible branches of the future’’ where leaving will have been an error.

Cummings’s main thesis is that Britain’s system of government is “systematically dysfunctional” and designed to keep the U.K. as closely tied to the EU as possible. He’s called for a radical shake-up of Whitehall, saying Brexit cannot be delivered without it.



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Interesting charts July 24th 2019



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Europe Bank Earnings to Offer Peek Into Negative-Rate Abyss

This article by Nicholas Comfort for Bloomberg may be of interest to subscribers. Here is a section:

The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money. Revenue at eight of Europe’s top lenders is set to decline 2.7% on average from a year earlier, according to filings and analyst estimates. That compares with a 0.5% gain for the top U.S. peers, many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015.

“The focus for European banks is really on revenue,” said Jonathan Tyce, an analyst at Bloomberg Intelligence. “Rates are set to go down, which means lower loan loss provisions, but that doesn’t make up for the loss in revenue. All this keeps bringing you back to costs.”

And here is a section on Deutsche Bank

Deutsche Bank (July 24) unveiled its biggest overhaul in decades this month, including a plan to exit its underperforming stock trading business. The move was partly driven by low interest rates and the company now assumes that European short-term rates will rise to just 0% in 2021. Deutsche Bank also offered insight into second-quarter earnings with a 5.9% slide in revenue. Costs and profit figures fell short of expectations, even before the bank said it expects 3 billion euros of restructuring charges in the period. Deutsche Bank says about 75% of the investment banking businesses it wants to keep will have a top five market position, and the release this week will 



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Email of the day on global growth

Can you please expand on this statement from Friday's commentary:

"There is potential we are currently at the trough in global growth which could support the stock market in its breakout."



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