Jens Weidmann Reflects on Financial Crisis, US Job Creation Falls, Soros Warns EU in ‘Existential Crisis’, more…

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Bundesbank President and Chairman of the Board of Directors at the Bank for International Settlements, Jens Weidmann, gave a speech on May 22nd that reflected on the financial crisis ten years on. As well as promoting the ‘normalisation of monetary policy‘, Weidmann also commented on the need to ‘curb the appetite‘ of banks purchasing government bonds in times of a liquidity crisis. His consistent message of achieving ‘price stability‘ and ‘sustainability‘ also ran throughout his speech:

It is essential that central banks tighten the monetary policy reins as soon as this is necessary for price stability. We must not, out of consideration for public finances in certain countries or for any losses sustained by individual financial market players, delay the normalisation of monetary policy.

He concluded by saying, amongst other things:

Central banks must not be overburdened; they should not be forced to pick up the pieces for political errors. Instead they should be allowed to focus on fulfilling their mandate.

I see a certain danger that lessons learned from the crisis may be increasingly thrown to the winds.

That makes it all the more important not to put the crisis to the back of our minds or postpone the necessary consequences.

One of Weidmann’s solutions to achieving ‘normalisation‘ is for a ‘material transfer of sovereignty to the European Union level‘. Expect this narrative to build over the coming weeks and months as further pressure is exerted on the economy and markets, particularly as a rise in US interest rates begins to feed through the system and borrowing becomes more expensive for consumers and banks alike.


CNBC: May nonfarm payrolls total 138,000 vs 185,000 expected

  • Job creation fell sharply in May with just 138,000 new positions created, while the unemployment rate declined to 4.3 percent, according to Labor Department data released Friday.
  • Wage growth also disappointed, with average hourly earnings rising at a 2.5 percent annualized pace. The average work week was unchanged at 34.4 hours.
  • In addition to the weak May numbers, previous months also saw significant downward revisions. March’s weak 79,000 got sliced down to 50,000, while the April number declined to 174,000 from 211,000. Taken together, job growth has averaged just 121,000 over the past three months.
  • An alternative measure of joblessness that takes into account discouraged workers and the underemployed fell to 8.4 percent, its lowest reading since November 2007. The level of Americans counted as not in the labor force swelled to just below 95 million.

Market Watch: U.S. trade deficit climbs 5.2% in April to $47.6 billion

  • The nation’s trade deficit rose 5.2% in April, keeping the U.S. on track to post a bigger gap in 2017 than in 2016.
  • The deficit climbed to $47.6 billion in April from a revised $45.3 billion in March, the Commerce Department said Friday.
  • A higher trade deficit lowers the official scorecard for the U.S. economy, known as gross domestic product. The trade deficit is running 13.4% higher through the first four months of 2017 compared to the same period a year earlier.
  • Nor has the U.S. made any headway in cutting trade deficits with China, Mexico and Germany even though the Trump administration has made it a priority.

Daily Reckoning: China’s Next Step to Destroy the Dollar

  • China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar.
  • If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974.
  • To recap, the petrodollar is weakening because the dollar is losing power as the world’s reserve currency. This is similar to the way pounds sterling gradually fell out of favor during the decline of the British Empire. The decline may take a long time, but what we’re seeing today is another step in the death march of the dollar.

Bloomberg: Trump Cedes Climate Policy Leadership to Xi With Paris Accord Exit

  • President Donald Trump’s decision to isolate the U.S. on climate change has handed China a golden opportunity to burnish its image as a global leader, even as it angers and unsettles European allies.
  • Trump’s decision to withdraw from the Paris Agreement on climate — aligning the U.S. with Syria and Nicaragua as the only holdouts from an accord reached by almost 200 nations — leaves a leadership void to be filled. German Chancellor Angela Merkel told Trump at a summit last month that the retreat would signal a U.S. willingness to let less benign powers, like China, step up on the international stage.

Daily Express: ‘Mother of all bubbles’ Bank of England has backed into ‘dangerous corner’ – SHOCK WARNING

  • British households are suffering surging inflation that could be tackled by raising interest rates, if policymakers led by Governor Mark Carney raised interest rates, according to David Roberts fund manager at Kames Capital.
  • The Bank is scraping around for excuses to keep interest rates low for as long as possible, including blaming Britain’s vote to leave the European Union, he said.
  • But the real reason is the Bank’s quantitative easing programme, which has injected £435billion into the economy since 2009 by buying Government debts – known as bonds – said Mr Roberts.
  • The Bank of England along with central banks across the world now have added almost $18trillion (£14trn) to their balance sheets over the past 10 years, pushing up bond prices.
  • Raising interest rates risks popping the huge bubble that has been created in bonds.
  • Record low rates have also helped inflate house prices and borrowing, with markets now baring worrying similarities to 2008, according to Mr Roberts.

REUTERS: UK mortgage approvals slide to seven-month low as housing market softens

  • The number of mortgages approved by British lenders slid to a seven-month low in April, adding to evidence that the housing market is slowing, Bank of England data showed on Wednesday.
  • Banks and building societies approved 64,645 mortgages last month, slipping from a downwardly revised 66,043 in March and well below average forecasts in a Reuters poll of economists.
  • With Britons just over a week away from voting in a national election, the BoE figures added to signs that they are reining in spending the face of higher inflation since last year’s Brexit vote.

Daily Telegraph: ‘Dysfunctional’ EU has plunged into existential crisis, George Soros warns

  • The billionaire investor said the EU had “lost its momentum” as he urged policymakers to abandon hopes of “ever closer union” driven by a top-down approach from Brussels.
  • He warned that it would take another decade to heal a rift among EU countries that began at the start of the financial crisis in 2008.
  • Mr Soros said “outdated treaties” had transformed the eurozone into a series of creditor and debtor nations overseen by inept institutions that had stirred up resentment in the bloc.
  • “The European Union was meant to be a voluntary association of like-minded states that were willing to surrender part of their sovereignty for the common good.
  • “After the financial crisis of 2008, the eurozone was transformed into a creditor/debtor relationship where the debtor countries couldn’t meet their obligations and the creditor countries dictated the terms that the debtors had to meet. By imposing an austerity policy they made it practically impossible for the debtor countries to grow out of their debts. The net result was neither voluntary nor equal.”

Zero Hedge: US Construction Spending Plunged In April

  • If everything is so awesome (which the stock market alone is telling us it is), then why did US construction spending plunge 1.4% in April (worse than the weakest economists’ expectations)?
  • So this is the 3rd worst drop in construction spending in 6 years…
  • The last time US construction spending plunged like this – global central banks unleashed a coordinated buying program to save the world.

Zero Hedge: New Warning Signs Emerge For Subprime Auto Securitizations

  • Last month, we pointed that one of wall street’s largest underwriters of auto debt was suddenly slashing their own holdings of auto loans while simultaneously ramping up the issuance of auto securitization facilities thereby pawning off the risk to ‘suckers’ who have no idea they’re jumping in front of yet another financial freight train (see “Deja Vu: JPM Slashes Auto Loans For Their Own Book; Ramps Up ABS Issuance For The Suckers”).
  • Now, according to Bloomberg and Wells Fargo, new signs are emerging which suggest that auto ABS facilities, like their RMBS cousins of last decade, aren’t quite as bullet proof as the ‘suckers’ thought they were.  While a subtle degradation, Wells Fargo points out that fewer auto borrowers are suddenly paying off their loan balances early.  And while that may not sound as dire as say a default, it suggests that auto borrowers may be finding it more difficult to find new financing when they go to trade in their 3-year old clunker for that brand new BMW.
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