🌎 Warning label | Israel election loom | Chopsticks and cold beer
December 04th, 2020
An unusual party in Brussels with some very special guests stole center stage this week. Among too many guests (20), there were illegal substances and a Hungarian MEP. Ironically, this character is an effervescent ally of the right-wing party that is drawing a new constitution based on conservatism and declaring war on everything identified as being "too gay" in the country.
Brussels bunker “orgy” aside, … the bloc will now have to deal with Hungary and Poland to unlock the Covid-19 relief package in the coming weeks, risking an abrupt halt in funding of EU programmes from January and a deepening of the economic downturn caused by the pandemic.
Did You Know...
A famous logic-game was invented by Hungary inventor in 1975 and it quickly became a world fever.
If you can name it, would you be able to say how the current world record is?
Made in China = a “warning label”
In the remaining weeks of Donald Trump’s presidency, the Don has thrown one last punch. On Wednesday, the U.S government banned both the importation of cotton and cotton products from China’s western region of Xinjian. The move coincides with a wider push to ramp up pressure on China in the final months of the Trump presidency. These restrictions have made it increasingly more difficult for President-elect Joe Biden to ease U.S.-China tensions.
Kenneth Cuccinelli, Secretary of the Department of Homeland Security, has referred to the label on the back of our clothes Made in China as a “warning label”. Cuccinelli further warns that the cheap Chinese cotton goods purchased for loved ones that now sit wrapped under your decorated Christmas trees, “...may have been made by slave labor in some of the most egregious human rights violations existing today” he told a news conference.
China has, of course, rejected the criticism, stating it strives to eliminate poverty and religious extremism in the region of Xinjiang.
This ban on cotton is targeted at a powerful Chinese quasi-military organization known as Xinjiang Production and Construction Corps (XPCC), which faces claims of employing the slave labor of detained Uighur Muslims. XPCC is one of China’s largest producers, accounting for approximately 30% of China's cotton in 2015.
Not only will Biden struggle to calm this now raging fire, but this will have a widespread ripple effect on all companies globally associated with the selling of apparel to the United States. An industry already depressed by the COVID-19 pandemic, as seen in Fig 1.
Figure 1. US Apparel Import from China. Source: OTEXA (2020)
The year 2020 cannot get much better, can it?
FX | The USD/CNH pair has declined 7.3% since June, as the CNY is hovering close to its highest level since June 2018. The fundamentals remain steady, with the Chinese government gradually opening their financial market to attract foreign investors and boost demand for yuan, as well as the expectation that President-Elected Joe Biden will lower the temperature of the trade war between the U.S and China, which would be a bullish development for the Chinese currency.
MONTHLY REPORT | December
LATAM macro trends and the effect on the balance sheet
Read over our Latam macro trends report and how we provide FX hedging solutions.
Israel heading for its fourth election in less than two years
The Israeli parliament has recently backed a preliminary vote to dissolve itself. The vote passed with backing by the defense party minister Benny Gantz, who has been in a power-sharing deal with Prime Minister Benjamin Netanyahu since April. Although the bill still requires additional readings in parliament, 61 lawmakers have already voted in favor and 54 against.
The night before the vote, Mr. Gantz publicly denounced Mr. Netanyahu for intentionally delaying budget agreements to stay in office; an act which he labeled "an economic terror attack". Mr. Netanyahu is now on trial facing corruption charges, claims of bribery, fraud, and breach of trust.
Political analysts claim Mr. Netanyahu is attempting to exploit a loophole in the Israeli political system. The loophole would permit Mr. Netanyahu to remain in power if the government collapses due to a deadlock in budget negotiations. Israel is somehow functioning on a revision of the 2019 national budget which was approved back in 2018.
If you thought the 2020 US election was a nail biter, think again. Compared to the US, this is an excursion on the Magic School Bus with Ms. Frizzle.
The phantom 2021 budget includes the necessary reforms devised to feed the Israeli economy currently left starving for fiscal stimulus. Israel's central bank last week urgently pressed for government approval on next year's budget to prevent prolonged fiscal stress and widespread economic hardship. The Israel economy sunk nearly 30% in the second quarter of 2020 and unemployment reached a high of 27% in the peak of the recession.
Figure 1. Israel GDP. Source: Focus Economics
Tel Aviv, the capital city of Israel, has witnessed large demonstrations throughout the year, where thousands of Israelis have protested against the government's mishandling of the coronavirus crisis. Opposition leader Yair Lapid has warned that "... infection rates are increasing again [and] we need a government that will work for the citizens of Israel."
This is a story Deaglo has been following closely all year and now on the eve of a parliamentary dissolution, we are on the edge of our seats waiting to see what happens next. The saga continues.
FX | Despite the imminent collapse of the government this week, the ILS continued to appreciate against the USD. It has appreciated nearly 15% since March and over this week the exchange rate reached to 3.289, which was the shekel’s strongest level since 2008.
Vietnam's future remains bright
Probably the most recent memory you have of Vietnam is the memorable meeting of former-President Barack Obama with Anthony Bourdain eating noodles and drinking beer in a restaurant in central Hanoi.
On that trip, Obama was seeking guarantees and support from Asian countries to complete the Trans-Pacific Partnership (TPP), while Anthony was looking for the best food in town and exploring the ‘Parts Unknown’.
In the four years following that episode aired, Vietnam has seen consecutive years of economic growth halted by the coronavirus pandemic. Its successful progress towards achieving its socio-economic dreams for the 2016-2020 period was destroyed. Prior to the coronavirus pandemic, the Vietnamese economy had been growing strongly, around 7% in the last three years (Fig 1), and was on track to finish the year maintaining a similar growth rate.
Figure 1. Vietnam Annual GDP. Source: IHS Markit
However, as the virus began to spread across the country and the world, its economy suffered a significant blow due to weakened demand and reduced trade. This led IHS Markit and the International Monetary Fund to forecast growth of 2020 GDP of “just” 2.2% and 2.4%, respectively - among the highest in the world.
That being said, to generate GDP growth in a year when the global economy was in severe turmoil is impressive and a testament to the country's successful handling of the health crisis (Fig 2) and subsequent rebound in activity.
Figure 2. Vietnam has registered 35 deaths so far. Source: Worldometers
The recipe was not much different from other countries regarding fiscal response and eased monetary policy. However, the State Bank of Vietnam (SBV) had been doing its homework. All it took was a few more cups of liquidity into the economic mixing bowl. Thus, the fiscal response rapidly kicked off, supporting vulnerable households and firms, which have benefited from prudent policies adopted in the past. Monetary policy easing and temporary financial relief measures by the SBV have alleviated liquidity pressures, lowered the cost of funding, and facilitated the continued flow of credit.
As a result of the sustained domestic economic situation and improved international trade, factory output is strengthening during the fourth quarter and manufacturers are growing more and more confident about 2021. The IHS and IMF are likely to confirm this in their GDP projections for this year.
Although that fleeting moment amid chopsticks and bún chả sadly cannot relive itself, Vietnam is on track to reinvigorate its strong recent economic performance and outperform its Asian peers.
FX | Vietnamese central bank to continue intervening to maintain the Vietnamese dong (VND) stability over the coming quarters. As of present, the VND has appreciated almost 1% against the US dollar since January.
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Quiz of the week
The original name of the iconic game was Magic Cube, which was changed to Rubik’s Cube by the Hungarian inventor in 1980.
Feliks Zemdeg solved the Rubik’s Cube within 4.22 seconds. However, the robot, called CUBESTORMER 3, can solve the cube in just 3.253 seconds.