Good morning 🦁- it is Monday 🤗 Can’t wait for another week of Asian economics!!! Don’t worry, we’ll continue this NIRP thread during lunch hour (kind of fun to have a virtual reading club right?) This is where nerds rejoice 🤓🤓🤓😎💪🏻💪🏻💪🏻!!!
Let's look at the agenda for this week:
South Korea 🇰🇷 1st 20-day of trade 🥳🤗 - fav data obvs because it is the 1st for the region & so far the 1st 10-day is really bad & China lending data horrible for July
Fed minutes
Indonesia rate - cut expected by me
Flash PMIs 👈🏻
Watch reforms to the Loan Prime Rate (LPR) that replaces the benchmark 1y lending rate of 4.35% for new ref rate for pricing of new corp loans from 20 Aug:
Frequency of adjustment MONTHLY on 20th each month
Linked to 1yMLF (3.3%)
# of participating banks rise to 18 from 10
(Deleted old tweet b/c I said daily but should be monthly).
Note that the central bank said that the reform of the LPR can, "Achieve the effect of lowering the real interest rate for loans."
In other words, watch this stealth move by the PBOC to lower lending rates for the eco
How rates work in China:
a) Benchmark lending rate for 1yr was 4.35% & that will be REPLACED TOMORROW
b) Average lending rates is 5.9% (above 4.35% & defo above ever-lower SHIBOR, which doesn't tell u much about funding conditions of eco but rather large banks)
c) MLF rate 3.3%
MLF stands for medium lending facility & this move on LPR key:
*18 reporting banks'll add a spread to the MLF (3.3%) based on own calculation of funding costs, demand, risks
*Submit before 9am on 20th/month
*LPR'll have longer tenure & ref for new loans
*Goal is to lower rates
This is on the back of very bad lending data in July & the only thing that went up was local gov issuance so the PBOC is clearly worried about TIGHT LIQUIDITY & the stickiness of lending costs despite lower SHIBOR.
Oldies but definitely goodies on what happens next in China regarding PPI & - yes, the interview was on 15 Feb 2019 - on why rates will have to fall in China. This interview was the day after we published our 💌
And obvs this one a month ago - all relevant today. Btw, what happens when rates fall? Watch China tomorrow for the new LPR thing & also the OMO. People are watching this very intensely.
The best research on India is written by the @RBI and it's called the RBI Bulletin (very similar to BOE bulletin) & it's amazing. Go to the state of the economy for charts/details on what's going on in India & then they always have essays on specific issues.
Central banks are consistently the best place to get information on a particular country. I also like the RBA website as well. Enjoy!
We can read some of these together in case you find it intimidating reading central bank language.
Germany is in structural decline & the path for that was waved by Angela Merkel who:
a) Allowed for mass irregular migration since 2015 that paved ways for Brexit, the far right rise in Germany and Europe
b) Appeasing Russia after its annexation of Crimea and expansion dependency on Russian gas
c) Phasing out nuclear energy.
As a result, Germany today deals with HIGHER input costs (energy is obvs) & also the political fallout of irregular migration.
Sholz of course is a worse politician than Angela Merkel but the path of its demise is paved by her.
The fact that China has pursued:
a) Expansion of coal, solar, wind, and nuclear to REDUCE INPUT COSTS
b) Subsidies in high-tech
c) Allowed for it to be competitive despite higher tariffs in Europe.
Meanwhile, Sholz asleep at the wheels. This is his reaciton: “Our country cannot and must not get used to this,” he went on. “The AfD is damaging Germany. It is weakening the economy, dividing society and ruining the country’s reputation.”
Germany doesn't understand that it cannot pursue its current path of extreme liberalism that worsens its competitiveness and destabilize its own society & expect to do well to lead Europe out of this mess.
Extreme liberalism can only exist in a vacuum or hypothesized world.
We exist in a world of limited resources. Countries like China are just better organized. Believe it or not. Sholz has no clue & will lose in 2025 but before he is gone he is still around to make a big mess.
Continuing to close the last 3 nuclear plants was a disaster.
Statistics versus anecdotes. What do you believe? Well, if you study a Stat 101, the first thing they teach you is HOW the data is compiled & then you learn HOW to read it.
Fact: People feel that crimes are up because they know someone who is personally attacked or themselves;
Also fact: Crime stats show that crimes are down.
Can both be true? Yes, because crime stats can be manipulated by the source of crime but not including crime.
Are the Democrats the party of crime and punishment? Or are they the party of having low crime by REDEFINING what a crime is? Or even counting and prosecuting it?
The reality is that it is hard to know if the statistics are misleading because the beauty of statistics is to be impartial & to be able to aggregate and quantify your perceived reality, which is MICRO, and stats are supposed to help with MACRO & relative past/present/future.
Another example is of course the employment data that is just released by the BLS that revised downward jobs addition by almost a million jobs.
That's a lot. So you were right to think things were weaker than you thought. But you were also right to say that the labor market was strong, until they revise it downward for jobs that are interest rate sensitive.
Pig Butchering Scam. Do you know what it is? I didn't until this Bloomberg Feature Story. USD75bn has been stolen from victims around the world & routed through crypto exchanges.
Before I go on about the story, I want to talk about this idea of Pig Butchering Scam. Basically, it works like this, usually via crypto.
You befriend a victim via social media & gain their trust & get them to invest in crypto & allow them to get "fat" or gain & finally "butcher" them by taking a larger sum and disappear.
Scams are an industry. According to this Bloomberg story, there's an entire economic zone dedicated to it with an airport, casinos, resorts, basically soft & hard infrastructure.
A man called Zhao built it & gives the Laos government a 20% cut for a 99-year lease. He then leases out the infra to criminals that run online scams & also drug trafficking.
There's an entire supply chain w/ incentives, including the perpetrators, who are also victims of human trafficking.
India unveiled its FY25 budget yesterday (btw, they have another one in 6 months) & it was very much a fiscal consolidation, jobs, and responding to people's beef about the woeful labor market (Modi lost seats in Uttar Pradesh).
Before I talk about the Budget, let's talk about India labor supply & demand. Ready?
As you know, India is the most populous country in the world today & will be even more so in the future.
Let me put it a different way, by 2040, one out of 5 people will be Indian.
So what happens to India matters because it's a fifth of the world population by 2040.
India will have more people than China or the same as China and the US combined.
Yes, a lot of people. That's beautiful (generally referred as demographic dividend assuming that we have jobs for them) and highly problematic for India (high joblessness and civil unrest), Indian politics and also how to manage this massive supply of people (skilling them, finding jobs for them etc).
First, nickel is a material that has to be DUG out of the earth & process. Some easier (colder nickel in Russia) & some harder like wet & warm places like Indonesia where you have plenty of it but it's the processing that's difficult.
Here comes China.
The mining & processing of nickel are energy intensive. And more importantly, for Indonesian nickel, it was considered too low grade to do & China had breakthroughs in a technology called high-pressure acid leaching (HPAL). "Low-grade nickel ore is placed into pressure vessels, where it’s treated with sulfuric acid and heated. After that, the nickel that separates out will be suitable for batteries, once it’s refined"