Markets

China’s unprecedented growth since reforms began in the late 1970s has been accompanied by an equally transformative process of urbanisation. China’s urbanisation rate increased from 17.9 to 54.8 percent between 1978 and 2014, which represents the largest peacetime population movement in human history. The transfer of labour from the agricultural sector and rural areas to non-agricultural sectors and urban areas in China underwrote the world’s fastest sustained period of economic growth in the past three decades.

Malaysia’s 1Malaysia Development Berhad (1MDB) scandal reached a crescendo in July 2016. The US Attorney General claimed that more than US$3.5 billion belonging to 1MDB was ‘allegedly misappropriated by high-level officials of 1MDB and their associates’ between 2009 and 2015. The case is officially closed in Malaysia, but Prime Minister Najib Razak’s difficulties remain.

Without networks within the military, and having no effective power over the political parties, President Joko Widodo (Jokowi) has been constrained in his political manoeuvres. To combat this, Jokowi has installed retired army generals to important civilian posts as coordinating ministers, defence minister and head of state intelligence.

The inclusion of a considerable number of former military officers in his administration has been Jokowi’s way to balance the influence of the oligarchs that supported him during his presidential campaign.

During the second bi-monthly monetary policy decision in August this year, the Reserve Bank of India maintained the policy repo rate under the liquidity adjustment facility as unchanged at 7.25%. As a consequence, the reverse repo rate against the liquidity adjustment facility will remain unchanged at 6.25%.

EM ended last week on a soft note, as Fed tightening expectations ratcheted up.  The December Fed funds futures contract has an implied yield of 0.5%, the highest since June 2.  Note that on June 3, US rates plunged after the May jobs shocker (+38k).  If the hawkish Fed storyline can be maintained, then EM will have trouble getting traction.  This Friday’s jobs report for August will be key, with consensus at +185k vs. +255k in July.

Federal treasurer Scott Morrison’s diagnosis of the risks and challenges confronting the Australian economy, as set out in his Bloomberg Address in Sydney, is hard to fault.

South Africa’s economic capital, Johannesburg, has a new mayor, Herman Mashaba. His election marks two watershed moments: he is a member of the Democratic Alliance, which has never run the city before; and he’s a successful businessman who has never been a public servant. Does a business background matter in public service, particularly in the South African context? The Conversation Africa’s business and economy editor Sibonelo Radebe chatted to Lumkile Mondi from the University of the Witwatersrand.

Reserve Bank of India Deputy Governor Patel has been named to succeed outgoing Governor Rajan; political risk is back in South Africa; the Colombian government and the FARC rebels have reached a final peace agreement; S&P cut the outlook on Mexico’s BBB+ rating from stable to negative.

Background

In February 2016, the Bank of Japan (BOJ), in order to reach a 2% inflation target, initiated a negative interest rate policy by increasing massive money supply through the purchase of long-term Japanese government bonds (JGBs).

This policy flattened the yield curve of JGBs. Banks started to purchase government bonds less frequently, because of the negative yield for both short-term government bonds and even for long-term government bonds up to 15 years.

Joko Widodo’s (Jokowi) victory in the 2014 presidential election was celebrated as it represented a major step forward for democracy in the world’s largest Muslim-majority country. Jokowi’s rise to power was unprecedented.

It was largely the collective effort of volunteers and a strong social media presence, which helped overcome his humble persona and highlight credible achievements during his term as mayor of Solo and Governor of Jakarta. This inspired high expectations that he would be able to enact much-needed political and economic reforms as president.