NEW YORK – Hating China may be the only thing that American politicians agree about, but China remains the prop and support of the American economy.
Americans can’t spend the trillions of dollars that their federal government has poured out in “stimulus” payments without Chinese imports. And the American Treasury can’t finance its projected US$2.3 trillion deficit – not without substantial pain – unless China recycles its nearly $500 billion trade surplus with the United States into US government bonds.
The US is perilously short of money, and China is flooded with money from its trade surplus. There’s nowhere else the US can raise the money it needs except China, unless it prints more money. What economists once called “Chimerica” – the symbiosis of an American economy that borrows and imports with a Chinese economy that lends and exports – is back with a vengeance.
As I wrote on June 11 (“China can help US out of its inflation trap”), China’s apparent support for the US dollar has a double impact. It supports the imperiled Treasury bond market, and it also keeps Chinese goods cheap for US consumers. That has a significant impact on US inflation: America’s trade deficit is deepening while import prices are rising.
The whole of the US body politic will fulminate about Chinese mistreatment of the Uighurs, democracy in Hong Kong, the Wuhan virology lab and so forth. And – I predict – the Biden administration will quietly take the money from Beijing and tone down the trade and tech war.
This will happen not because Biden is well disposed towards China, or because he planned to cut a deal with China, or because a cabal of China-friendly American business persuades him to do so, but simply because he is short of money and China has lots of it.
A forensic analysis of market data suggests that all of this already is happening. China is to thank for the buoyancy of the US Treasury bond market despite a sequence of inflation shocks. China appears to be intervening in the foreign exchange market to prevent its enormous trade surplus from driving down the dollar’s exchange rate against the Chinese renminbi (RMB), and then reinvesting the proceeds of intervention in American money markets.
That explains a number of market anomalies – for example, the plunge in China’s benchmark Shanghai Interbank Offered Rate for 3-month interbank loans despite China’s efforts to keep money tight. It also explains the recent drop in the inflation premium built into US Treasury notes – despite a sharp rise in the price of oil, which normally tracks the inflation premium.
The econometric methods I employ to test this hypothesis will be opaque to non-specialist readers, but I report them as a matter of due diligence. Politicians lie, but the data do not. The data squeak and jibber seemingly at random, until we filter out the noise and tease out the underlying signal. And this signal shows clearly that the United States is more dependent on China than it ever has been in the past.
Let’s start with the dog that didn’t bark (or, to twist a metaphor, that barked in reverse). That’s the bond market’s gauge of expected inflation, the difference between the nominal Treasury note rate and the yield on inflation-indexed Treasuries (the inflation rate at which investors in nominal and indexed Treasuries “break even”).
This is one of the most consistent relationships in finance, and understandably so, given the importance of the price of energy for the overall price level.
There is any number of reasons why this might happen, but two are the most plausible. The first possibility is that bond investors are so persuaded by the Federal Reserve’s contention that inflation is “transitory” that they have decided to ignore the oil price signal that almost always guides inflation expectations.
The other is that someone is buying Treasuries who doesn’t care about inflation expectations. That would be a central bank, and the prime suspect is the People’s Bank of China (PBOC).
The PBOC, I believe, has intervened heavily in foreign exchange markets, soaking up dollars offered for sale against RMB, and investing the proceeds in US Treasuries. Such investments are hard to trace; the PBOC doesn’t necessarily hold Treasuries through its account at the Federal Reserve, but might buy through accounts in London or other financial centers. There are, however, in China’s money markets, tell-tale traces of intervention.
There are two key benchmark rates in China’s money markets: The rate at which the PBOC lends to banks, namely the seven-day repurchase (or “repo”) rate, and the 3-month Shanghai Interbank Offered Rate (or “SHIBOR”), the rate for loans among the major banks, which borrow and lend as their reserve requirements dictate.
SHIBOR is the rate more closely linked to the foreign exchange market. The interest-rate measure that tracks the dollar-RMB parity most closely is the difference between SHIBOR and the London Interbank Offered Rate in US dollars (LIBOR). That conclusion comes from testing all Chinese money-market rates against the US dollar-Chinese yuan (CNY) exchange rate.
The relationship is even tighter than the above chart suggests. If we create a forecast of the USD/CNY exchange rate by regressing weekly changes in the USD/CNY rate against weekly changes in LIBOR and SHIBOR, we obtain a very close fit for the exchange rate during the past six years.
As noted, one big anomaly in the market is the broken link between the oil price and breakeven inflation. The other is the 3-month SHIBOR rate itself. SHIBOR has been falling while the benchmark 7-day repo rate has been rising.
That’s very unusual; it suggests that the PBOC is adding reserves to the banking system while keeping its lending rate to the banks high. As an instrument of monetary management, that makes no sense.
But it does make sense if the PBOC is buying dollars on the foreign exchange market, and printing RMB with which to buy them. The increase in RMB deposits will reduce the banks’ requirements for interbank loans, and bring down the SHIBOR rate.
A further tell-tale sign is that the CNY exchange rate has led to changes in SHIBOR during the past two years. The chart below shows the correlation between lagged values of the CNY/USD exchange rate and SHIBOR at intervals of zero to twenty days.
The longer the bar, the greater the correlation. Lagged values of CNY have a higher correlation with each day’s value of SHIBOR than vice-versa. This is additional evidence that the exchange rate is leading the Chinese interbank money market.
I would be surprised to learn that the US Treasury and the PBOC have worked this out in some kind of tacit policy agreement. The current is so strong that the US is being caught up in a Sinocentric vortex of trade and capital flows whether it likes it or not.
Eventually, US-China policy will adjust to the misery of America’s present circumstances.
England fans helped drive up retail sales by 0.5% last month
By SUSANNAH STREETER
The Euros kicked off a spell of celebratory spending as national teams progressed through the tournament, fans splashed the cash on food and alcohol.
Beers, pizza and BBQ treats flew off the shelves, boosting spending in food stores by 4.2%. That marked a turnaround compared to May when the re-opening of indoor dining led to a decline in retail food sales.
The fickle nature of our spending patterns has continued with spending on clothing falling out of fashion again, with volumes down by 4.8%. In many homes it seems the love of football overtook passion for other hobbies in June.
With eyes glued to screens for matches, the love affair with DIY seems to have waned. Household goods stores saw a fall in sales volumes of 10.9% in June although supply chain problems causing a shortage of popular goods on shelves may also be behind the drop compared to May.
Spending overall though on furniture and items for the home is still 15.8% above their pre-pandemic levels, indicating plenty of people are doing up their pads, partly because they still spend so much more time at home.
A new ethical trend of shopping appears to be developing with a rise in spending in charity shops accounting for a large part of the 8.6% growth in other non-food stores. With so many people clearing out pre-loved items, shoppers are going bargain hunting in stores, attracted by the triple benefits of contributing to a good cause, cutting down on waste and saving pounds.
The novelty of browsing in real instead of virtual stores hasn’t yet worn off. The amount of money we spent online fell in June by 4.7% compared with May, with shopping now entwined in our social lives once more.
Other research from the ONS this week showed that in July shoppers have continued to cool down from the hot pace of spending the sector saw in the spring. In the week to 15 July 2021, spending on debit and credit cards fell by 5 percentage points from the previous week, coming in at 92% of the level in February 2020. A fall in social spending is partly behind the drop, with people splashing less cash on restaurants, hotels and air travel.
People are clearly fed up with playing the traffic light guessing game and many have ditched plans for holidays abroad.
Delayable spending on goods like clothing and cars is also at 85% of the level in February 2020, indicating caution is once again becoming the name of the game, as concerns about the spread of new variants rise.
Data indicates that fortunes are looking up a little for the high street as more customers return, partly as football fever has subsided.
The latest ONS economic report highlights Springboard research which shows that high street footfall in the week ending July 17th saw a weekly increase of 3%, its first rise since the beginning of June 2021, creeping back up to 70% of pre-pandemic levels.
But retail parks remain the most popular location to splash the cash. Footfall has bounced back in out of town centres to 99% of levels witnessed before the crisis hit.
Susannah Streeter is a senior investment and markets analyst at Hargreaves Lansdown
A Darlington engineering group has collapsed into administration in yet another blow to the steel industry.
Around 220 jobs are at risk at Cleveland Bridge, which helped build the Shard skyscraper in London, the Wembley Stadium arch and the Sydney Harbour Bridge.
It is understood the engineer’s finances were hammered when a major bridge-building project in Sri Lanka was put on hold because of Covid.
Around 220 jobs are at risk at Cleveland Bridge, which helped build the Shard skyscraper in London (pictured), the Wembley Stadium arch and the Sydney Harbour Bridge
Cleveland Bridge, founded in 1877, was in talks with its owner, Saudi Arabian Al-Rushaid Group, to secure an extra £6million of funds but this was unsuccessful.
Martin Puller, a partner at Cleveland’s administrators FRP Advisory, said the company had been ‘a flagbearer for cutting edge British engineering for more than a century’.
The UK’s steel industry has been struggling for years but Covid has put firms under even more pressure.
British Steel went bust in 2019 and Sanjeev Gupta’s Liberty Steel has been fighting for survival after its main lender Greensill Capital failed.
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‘Time traveller’ claims 7ft aliens will land on Earth next year and spark war
A “time traveller” who claims to be from the year 2491 reckons there will be giant aliens with a”distorted appearance” arriving on Earth in 2022.
The adventurer, who goes by the name “futuretimetraveller” on TikTok, revealed some of the details of the “extraterrestrial species” and bizarrely claimed they will “spark war” with humans.
The video shows a blue sky in the background with large-font captions, which read: “What you call Aliens will make their first appearance on Earth next year.
“The exact date they are first sighted is May 24, 2022.”
The “traveller” then explains that in 2491, there are various types of aliens and the group that live on Earth “as citizens” are called “Nirons”.
Do you believe time travellers exist or are they complete nonsense? Let us know in the comments below
“[They] come in peace and don’t mean harm but the US attack them and begin in the first of many inter-dimensional wars,” they added.
“They are about 7ft 4in and have long shaped skulls, dark grey and distorted appearance. They do not come to be harmful but are extremely dangerous when provoked.”
As with all so-called time travellers, the TikToker provided absolutely zero evidence for his bombastic claims – but that didn’t stop the video being seen more than 94,000 times.
Many viewers were dubious about the theory and they tried to ask for more details about the alien’s arrival.
One said: “So do humans and Nirons procreate and create a new race?”
A second added: “I’m so hooked on your account and scared at the same time.”
“I heard the government is already working with them,” another suggested and the adventurer replied: “I want to tell you because I know but am scared for my own safety.”
“Futuretimetraveller” is not the first TikTok influencer who posts bizarre warnings of events from the future. Another recently made a bonkers claim that there would be pyramids in the sky and warned viewers to “not look up at them” when, or if, his outrageous prediction occurs.
Malaysian police hit on a novel way to dispose of more than 1,000 bitcoin-mining machines seized in raids – they crushed the devices using a steamroller.
Authorities on Borneo island discovered the machines, worth an estimated 5.3 million ringgit (US$1.25 million), in crackdowns between February and April.
Eight people were arrested for allegedly stealing the equivalent of $2 million worth of electricity to power the energy-hungry computers, according to police.
“The crypto-miners stole electricity,” said Hakemal Hawari, a senior police official in the city of Miri, where the devices were seized.
“Their actions are dangerous for life and property, as they can cause power outages.”
The 1,069 mining machines were laid out in the car park of a police station in Miri last week and crushed with a steamroller.
Six of those arrested were convicted of stealing electricity, jailed for six months and fined.
Crypto-mining – the process by which computers mint new virtual currency and validate transactions – requires vast amounts of energy and processing power.
The process typically involves large numbers of sophisticated computers that form a specially designed “rig” that runs the complex calculations required to maintain a cryptocurrency network.
Bitcoin mining is common in the Southeast Asian nation and there are regular reports of police arresting crypto-miners and seizing their rigs. While energy-hungry, the process can be lucrative with each bitcoin now worth more than $32,000.
Bournemouth beachgoer says ‘everyone was groping me in the water’ after teen girl raped
A woman has claimed that she was sexually assaulted at the same part of a beach a teenage girl was allegedly raped at during the weekend.
Dorset Police confirmed on Wednesday that a 15-year-old girl reported she was raped while swimming in the sea at Bournemouth on Sunday, July 18.
And now following the shocking news of the incident, a woman reportedly posted on social media claiming she was a victim of being groped in the sea off Bournemouth a few weeks before.
According to the Daily Mail, she wrote: “I went a few weeks back and everyone was groping me in the water.
“There was hundreds of people and it was people passing me by in the water so I couldn’t really get a good look at them.
“I just kept swimming to other areas. It happened everywhere though and I’m fine.”
The police released an appeal for witnesses to the rape of the 15-year-old girl and revealed the victim was with her friends playing with a ball when it landed in front of a teenage boy on Sunday.
The boy eventually threw it back to one of the group and then began talking to the victim, before pulling her out deeper into the sea where it is reported that he raped her.
A release by Dorset Police said: “The offender told the victim that he was 17 years old and was travelling to Birmingham.
“He is described as possibly of Pakistani descent and with tanned skin, between five feet and five feet seven inches tall and of a thin but muscular build with short dark hair that was pushed back and looked freshly trimmed.”
He was wearing black or grey swimming shorts, the statement added.
Detective Inspector Wayne Seymour, of the Major Crime Investigation Team, said: “A full investigation is underway into this incident and we are continuing to support the victim while we carry out enquiries.
“I know that the beach was very busy on the day of the incident so I am appealing to anyone who was in the area and may have witnessed what happened to please come forward.
“Also, I would urge anyone who was on the beach in the vicinity of the Oceanarium to check any photographs or video footage taken to see if they have captured anything of relevance.
“I am particularly keen to speak to anyone who recognises the boy from the description given or may have seen him on the beach on Sunday 18 July.
“This incident will understandably cause concern for the wider community and we would like to remind the public that officers from the local neighbourhood policing team will be carrying out patrols in the area and can be approached with any concerns.”
Anyone with information is asked to contact Dorset Police at www.dorset.police.uk, via email firstname.lastname@example.org or by calling 101, quoting occurrence number 55210115587.
Alternatively, to stay 100 per cent anonymous, contact the independent charity Crimestoppers online at Crimestoppers-uk.org or call Freephone 0800 555 111.