Hello. Today we look at how the spreading delta variant risks snarling global supply chains, the week ahead in global economics and concerns over just how much fiscal room the U.S. really has.
Supply Chain Strain
After weathering earlier pandemic waves better than other regions, the fast-spreading delta variant has thrown into turmoil factories and ports in countries that were once among the most successful containing the virus.
The snarls in Asia -- where the United Nations estimates around 42% of global exports are sourced -- risk twisting their way through global supply chains just as shipments would usually ramp up for the Christmas holiday shopping season.
The flare-ups worsen an already tortured year for exporters, with shipping costs sky-high due to a shortage of containers and as raw materials such as semiconductors become pricier and difficult to source.
In China, the world’s third-busiest container port was partly shut recently, while in Southeast Asia -- among the worst-hit regions -- factory executives have stalled production of electronics, garments and other products.
At stake is an export boom that shielded trade-driven economies during the pandemic and was expected to fuel a broader rebound.
— Enda Curran and Michelle Jamrisko
The Week Ahead
In the U.S., investors will be eyeing the latest retail sales data on Tuesday to see if consumer demand remains strong and if the shift in spending to services from goods continued in July. Other reports due include those on business inventories, industrial production, housing starts, and weekly jobless claims.
Elsewhere, central bankers in New Zealand are predicted to hike interest rates, while their counterparts in Indonesia, Norway, and Namibia are expected to hold.
For a full rundown of the week ahead, click here.
Today’s Must Reads
- China Slows | China’s economic activity slowed more than expected in July, with fresh virus outbreaks adding new risks to a recovery already hit by floods and faltering global demand.
- Avoiding recession | Japan skirted a recession last quarter as a rebound in consumer spending defied virus restrictions, but the increased activity is also fueling the spread of Covid-19.
- Europe boom | Italy and Spain are set to record the fastest pace of economic expansion this year in more than four decades, a strong rebound that will help the countries overcome last year’s deep recession.
- Data dependent | A few more strong jobs reports in coming months would mark enough progress in the recovery from the pandemic to allow the U.S. central bank to begin winding down its bond-buying program, Federal Reserve Bank of Minneapolis President Neel Kashkari said.
- Dollar threat | Niall Ferguson and John Authers look at the lessons to be learned from Richard Nixon’s scrapping of the Bretton Woods monetary order.
Need-to-Know Research
The U.S.’s low government bond yields exaggerate fiscal space available for deficit spending because Federal Reserve purchases are distorting market prices, the Institute of International Finance said.
In a paper examining ballooning government debt levels and record-low interest rates, the IIF sought to gauge available deficit financing by estimating how much debt governments could sell to markets at low yields. It tapped flow of funds data in order to split out central bank purchases from demand for government bonds.
“The remainder is what markets were willing to finance and that number – for the U.S. – has declined versus the global financial crisis,” the IIF’s Robin Brooks, Jonathan Fortun and Jack Pingle said in an Aug. 12 research note.
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