Gauging the EU's Risk of Losing Italy

In the aftermath of the Brexit tensions, Italy is defying Brussels to bail out troubled banks and preparing for constitutional referendum in October. If Prime Minister Matteo Renzi fails to achieve adequate support, economic destabilization will shift from the UK to Italy – which could pave way to the rise of anti-establishment left or right.

Here is Your China Update

This is the period in the monthly cycle that China releases most of its high frequency data.  The process is well under way.  Over the weekend, China reported its reserve figures that suggested capital outflows have slowed.

Earlier today, China reported its largest trade surplus (in dollars and yuan) since January. 

With the help of a lending spree, Chinese officials have managed, apparently, to stabilize the economy.  Data due out over the coming days is likely to confirm this signal. 

Many EM Central Banks Meet though Few, if any, Will Act

EM ended last week on a firm note, despite the stronger than expected July jobs report.  As we suspected, one strong US data point is not yet enough to derail the dovish Fed outlook.  With the RBA and BOE cutting last week and the RBNZ expected to cut this week, the global liquidity backdrop remains supportive for EM and risk.

An Emerging Markets Status Update

In the EM equity space as measured by MSCI, Indonesia (+4.2%), Poland (+3.9%), and Brazil (+1.9%) have outperformed this week, while Czech Republic (-5.4%), Singapore (-1.5%), and UAE (-1.3%) have underperformed.  To put this in better context, MSCI EM rose 1.2% this week while MSCI DM fell -0.4%.

Swiss Resiliency is Legendary

Despite Europe’s crisis turmoil, the Swiss growth engine seems even more resilient than before – perhaps not least because it has embraced the European Union, but not the euro.

How did China Accumulate so much Corporate Debt?

Since the mid-2000s, Chinese corporate debt has risen sharply as a proportion of GDP — from around 100 percent to 164 percent in 2015. By comparison, this ratio is 67 percent in the United States and 103 percent in Japan. The rapid build-up of debt has prompted concerns regarding China’s financial and macroeconomic stability.

Excess Industrial Capacity was not Part of China's Plan

Americans have a saying about an 800-pound gorilla in a room.  It refers to a person or organization so powerful that it can act unilaterally.  The British have an expression about an elephant in a room.  It refers to a "fact" or problem that is not being addressed. 

Malaysia's 1MDB Highlights Deeper Problems

The 1Malaysia Development Berhad (1MDB) scandal in Malaysia, which has recently become the subject of a high-profile lawsuit by the United States Department of Justice’s asset recovery initiative, highlights the problems with state-ownership in the Malaysian economy.

To prevent such scandals from recurring in the future, Malaysia must define the role of the government in business and develop adequate institutional arrangements to counter potential abuse by politicians.