USA

“Made in China 2025”: China’s strategy for the future – a threat to the industrialised nations?

At least since US President Donald Trump declared punitive customs duties on Chinese imports to be a declaration of war against “Made in China 2025”, China’s project for the future has been widely talked about. The objective of the strategy is to fundamentally modernise China’s industry and to put it in a position to produce the high-tech products that the country has in the past had to import. In principle this is an important, indeed a long overdue, step in the right direction. This is because China’s previous growth model – cheap mass production of relatively simple industrial goods – has become outdated with demographic change and the country’s improved level of prosperity. “Made in China 2025” is based on the concept of “Industry 4.0”, the digitisation and networking of industrial production. It is planned that, by means of digitisation, ten selected key industries in China, including electromobility and robotics,…

Fed minutes: The Fed back-pedals

The minutes of the last Federal Open Market Committee meeting held on 8 November 2018, which were published yesterday evening, revealed surprising news about the direction of the Fed’s monetary policy going forward. Although the minutes left us in no doubt that the US central bank will raise the key rate corridor by another 25 basis points in December, what was new was the intention of the FOMC to change the language used. Whereas it was previously indicated that a gradual increase in the federal funds rate was adequate, it could soon be communicated that further key rate hikes will be made strictly contingent on incoming data releases. Fed chairman Jerome Powell pointed out only a few weeks ago that the Fed was weighing up a slightly restrictive fed funds rate. Many market participants had therefore gained the impression in recent months that a 25 basis point increase every quarter…

Equity markets – pessimism overstated

In the USA, interest rates have been rising since 2015. We are in the flattest cycle of key interest rate hikes in 50 years, but interest rates are rising. This naturally also has repercussions for medium and long-term yields which have also risen. At the same time, the US Federal Reserve is also winding back the supply of liquidity and slowly reducing its balance sheet. Financial markets and especially equity markets have long ignored this development. This phase now seems to be over. The current correction is being compounded as a result of a reassessment of business models in the technology sector. The previously anticipated profit increases are now being increasingly called into question. In addition, there are growing concerns that earnings prospects will be further reduced in response to regulation in the data area and possible restrictions on the technological oligopolies. However, I believe that too much pessimism is…

Is industrial development in the major industrialized nations lagging behind services?

After the financial and euro debt crisis, not only the economy in the western industrialized nations has managed to stage a strong recovery. Labour markets are also experiencing considerable relief. In most major industrialized nations, unemployment rates are now lower than they have been for many years. In Germany, the unemployment rate is actually lower than it has ever been. Even if the unemployment decline in other countries is less pronounced than in Germany, a similar trend can be noted in the United States and Japan. The unemployment rate in these major industrialized nations has now also fallen below its pre-crisis level, in Japan even significantly. While labour markets have now fully recovered from the financial crisis, the same cannot be said for some other indicators: for example, capacities of companies in the manufacturing sector in Germany as well as in the United States and Japan are still not being…

Fed: Key rates remain (for the moment) on hold

At the latest meeting of the Fed’s Federal Open Market Committee (FOMC), the target range for the fed funds rate was, as generally expected, left unchanged. The Fed had already expressed a good deal of optimism about the economic growth path in the previous FOMC Statement, and the tenor of the new statement from Dr. Powell and his team remains positive. For example, they have reaffirmed that momentum in the domestic economy is very strong. The unemployment rate is now said to no longer be “low” but to be “declining.“ Only business investment is perceived to have “moderated” from its rapid pace earlier in the year. It has also been pointed out that longer-term inflation expectations are unchanged. Overall, FOMC members have gone on record as saying that economic risks appear “roughly balanced,” adding that further gradual key-rate increases are warranted against this background. It is therefore extremely likely that…

After the elections in the USA: Trump will presumably not veer from his course

At the midterm elections to the US Congress, the Republicans – the party of the incumbent US president – have lost majority control of the House of Representatives. By contrast, the GOP has managed to somewhat increase its previously very slim majority in the Senate, the second chamber. The implication is that Donald Trump is going to find it more difficult to push through his agenda in future because legal amendments, as a rule, require the assent of both chambers of Congress. Even though Trump’s power has eroded, it is to be expected that he will not veer from the “America first“ course on which he has embarked. It could well be that Trump will seek to counter closer parliamentary scrutiny with more belligerent rhetoric. At the end of the day, though, it can be assumed that he will not risk choking off the economic upswing. Such a danger would…

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