The international media spent 2015 criticising South Korean President Park Geun-hye’s government and its policies, and the criticisms are visibly increasing in frequency. The topics range from history textbooks to excessive use of force by riot police, but they share one theme: serious concern for South Korean political democracy.
US grew nearly 300k jobs in December. The October and November jobs growth revised up by 50k. The unemployment rate was unchanged at 5.0%, even though the participation rate ticked up. If there was a disappointment it was that hourly earnings did not rise as much as expected. The 2.5% year-over-year growth from 2.3% in November. The market had expected a 2.7% pace. Still it is the upper end of the cycle.
For the first time this week, the PBOC set higher central reference rate for the yuan and Chinese shares rallied, with the apparent assistance of officials, after abandoning the circuit breakers. This, coupled with somewhat firmer oil prices, is helping to facilitate some semblance of stability in the global capital markets.
When ‘unthinkable’ events happen, they can change the course of history. The bilateral agreement reached by South Korea and Japan over ‘comfort women’ on 28 December 2015 was one such ‘unthinkable’ event.
South Korea had few incentives to resolve an issue that allowed it to exercise the moral authority of victimhood. In addition, Japan was not shy about expressing its frustration with its neighbour’s criticism of Tokyo’s handling of past wrongs.
So how did they reach an agreement, and what does it mean?
On Wednesday, the World Bank once again downgraded its global economic growth forecast for 2016. The downgrade resulted from the World Bank’s prediction of weak performance from major emerging market economies, like China and Brazil. The reduced performance of these economies will reduce overall performance of the global economy and perpetuate the sluggish improvement of more advanced economies such as the United States.
One might be forgiven for believing that nail-baiting start to the year is all China’s fault. It has repeatedly for eight sessions fixed the yuan lower, including earlier today, at a seemingly accelerating pace. The new circuit breakers, introduced on Monday, appear to be adding to the volatility. Chinese share trading was stopped today after the first hour with the CSI 300 off 7%. It appears that the central bank through its agents intervened in the offshore (CNH) market.
Former Fed Chair Bernanke has penned a blog post that seeks to refute claims that the US monetary policy was the start of a currency war. Brazil’s finance minister first levied this claim in 2010 as the Federal Reserve, under Bernanke’s leadership, launched a long-term securities purchase program commonly dubbed Quantitative Easing (QE).
Many in the media and the analytic community ran with the currency war concept, much to our dismay. In our work over the last several years, we have been critical of what we thought was a misuse of the concept.
The Minamata Convention on Mercury, a global treaty adopted in 2013, did not intend to serve as a major economic treaty. Its aim was to reduce mercury pollution around the world. However, according to a recent MIT study, that treaty, and several others, may have a significant positive impact on the U.S. economy.
The US dollar and Japanese yen have begun the year on a firm note, as have bonds, while equities markets have moved lower. This continues unabated today. Another consistency is the weakness in the Chinese yuan. The PBOC fixed the yuan lower for the seventh consecutive session.
During the second week of December 2015, Japan and India held one of their more productive annual summit meetings in recent memory in New Delhi. Breaking the pattern of high atmospherics and shallow content that has characterised Japan-India interactions over the past half-decade, prime ministers Shinzo Abe and Narendra Modi signed agreements on civil nuclear cooperation, defence equipment and technology transfer, protection of classified military information exchanges and high-speed rail cooperation.
