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China’s Transformation Includes President Xi’s Middle East Tour

President Xi Jinping’s three-nation tour in the Middle East heralds a shift from US regime change to Chinese economic development.

President Xi’s tour took place amid a perilous moment in the region. Saudi Arabia is struggling with the plunge of oil prices, rapidly rising debt and a war against Yemen. In Egypt, opposition is increasing against the perceived successors of President Hosni Mubarak’s three-decade long rule. In Iran, sanctions have been lifted after decades of international insulation.

GDP Growth Stalls as Corporate Defaults Soar to Six-Year High

GDP growth has slowed significantly while increasingly more companies are going broke and Americans are spending less. According to the Atlantic Federal Reserve’s GDPNow forecast, expect to see 1.2% GDP growth in the first quarter of 2016, after seeing just 1% growth in the last quarter of 2015. This is a significantly lower rate of growth than the 2.0% growth seen in the third quarter, and a significantly lower level than most analysts had expected.

Despite Some Positives, Japan’s Labor Market Challenges Persist

Japan’s labour market situation is improving. The unemployment rate of 3.1 percent in October 2015 was the lowest for 20 years. In addition, although improvement has been slow, wage growth has been accelerating. However, Japan’s labour market still faces several serious issues.

Japan Takes a Massive Liquidity Bet

Instead of boosting growth, the Bank of Japan’s negative interest rates will contribute to domestic fiscal deterioration, regional risks, and even global threats. About a week ago, the Bank of Japan’s (BOJ) governor Haruhiko Kuroda said to the parliament: “We are not considering a cut in interest on bank reserves.”

UK to EU: “We’re In”

Prime Minister Cameron has enthusiastically embraced the EC draft proposals in response to the UK’s demands. The wires quote Cameron as saying, “I would opt in to EU membership on these good terms.”

The proposals presented by European Council President Tusk are weak on details that are still to be decided, though Cameron quickly seized upon them to claim: I have delivered commitments in my election manifesto.” It has yet to be seen if it is sufficient to convince several of the Eurosceptic cabinet members and backbenchers.

U.S. Economy Shows Signs of Shrinking

A little over a month after the Federal Reserve confidently proclaimed the economic strength of the U.S., several indicators are showing signs of a shrinking economy. Manufacturing activity continues to decline, marking the fourth month that U.S. manufacturing has weakened. According to the Institute for Supply Management, manufacturing activity fell from the previous month and is shrinking. The Institute for Supply Management’s (ISM’s) Manufacturing PMI fell to 48.2%, with employment and inventories contracting.

Can Australia Capture Part of the Asian Century?

In 2012, Australia’s Asian Century White Paper outlined fundamental policy and attitudinal changes that would be required if Australia was to make the most of the opportunities presented by the Asian century. Yet it has had no impact on policy in Australia.

What is Causing Thailand’s Economy to Underpeform?

No country in Southeast Asia shoots itself in the foot more than Thailand. With so much going for it, the second-largest economy in the region still manages to underperform spectacularly. Its growth trajectory is in the 2–3 percent range even though it has the potential to track twice that figure. Two decades after it was considered a consolidating democracy, Thailand is now led by outright military-authoritarian rule. In much of the region, there will be considerable good news in 2016, but in Thailand, good news seems hard to find.

Is India Really ‘Open for Business’?

Since becoming India’s prime minister in May 2014, Narendra Modi has sought to make the country ‘open for business’. But while there is hope that his pro-business policies — often dubbed ‘Modinomics’ — will improve economic growth, aspects of India’s foreign trade policy seem at odds with the country’s aspiration for deeper engagement with the world economy.

Big Data Week in the Emerging Markets

As we suspected, the current EM bounce still has some legs. The BOJ’s surprise easing helped EM and risk end on last week on a strong note, and we expect that to carry over into this week. Within EM, we will start to see the first readings for January. The biggest risk perhaps is the jobs report on Friday. Soft US data has helped push out Fed tightening expectations, but a strong reading here could put it back on the radar screen.