From Focus Economics: Prices for Australian thermal coal rose over the last month, averaging USD 408.4 per metric ton in July, which was up 3.4% from June’s price and was 180.0% higher than in the same month last year. Meanwhile, on 29 July, the commodity traded at USD 407.9 per metric ton, which was 5.7% higher than on the same day of the previous month. As Europe’s energy crisis worsened in July, demand prospects for Australian coal improved. The EU has pledged to phase out most Russian oil imports by the end of the year and ban Russian coal imports from August. Meanwhile, Russia has gradually reduced gas exports to Europe since the start of the war in Ukraine, with the Nord Stream pipeline—through which most Russian gas to Europe flows—now operating at 20% capacity. In response to this, Europe is turning to Australian coal, with Germany’s decision in July to reactive two mothballed coal plants the latest example. Global coal consumption will rise to the highest level since 2013 this year, according to the IEA. Weaker supply also supported prices, as exports from the Port of Newcastle in Australia—the world’s largest coal port—fell to a five-year low in July due to flooding. Thermal coal prices should soften by the end of 2022 as Australian production picks up: The La Niña weather pattern has now ended, and Covid-19 related work absences should decline. Meanwhile, slowing global economic momentum should dent demand. However, our panelists see prices remaining around USD 60 per metric ton higher than before the war in Ukraine, with the EU’s turn to coal supporting prices. The key risk to the outlook is further Covid-19 lockdowns in China. The Australian government’s climate change policy, further restrictions on Russian energy exports to Europe and more heavy rains in Australia are other key factors to watch.

The red-hot housing market is showing signs of cooling down, but it’s not just in America where this is happening. Globally, cities all over are feeling the crunch, with price-to-rent and price-to-income ratios skyrocketing. These two ratios are important measurements as they measure housing affordability in given housing markets. In New Zealand alone, the price-to-rent index is 156.8 and the price-to-income ratio is 143.9.

A mixture of low interest rates across the developed world has created equally low mortgage rates; add cheap money to construction material shortages, and a short supply of finished housing, and you have a supply and demand issue. That has created a surge in home prices. The surge is still raging on; but while part of the market is overheating, other segments of the market are starting to cool down. There are a lot of moving parts in the housing industry, but if we do get to the point where housing prices begin to drop, it is a good sign of a recession.

Apart from recessionary fears, falling home prices are just plain bad. Certainly bad for elections. On June 21, Bloomberg reported: “Falling home prices would erode household wealth, dent consumer confidence, and potentially curb future development. Animal spirits are typically tamed when people are faced with higher repayment costs on an asset that’s losing value. And property construction and sales are huge multipliers of economic activity around the world.”

Granted, some parts of America are insulated from this. The majority of overpriced housing markets lie in the Northeast and the West Coast; see the chart below for an illustration.

What Has the Fed Said?

Recently, Fed Chairman Jerome Powell alluded to a “reset” in housing prices, and even mentioned the possibility of falling housing prices. Powell said the following at the FOMC Press Conference on June 15, 2022: “We saw [home] prices moving up very very strongly for the last couple of years. So that changes now. And rates have moved up. We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. Obviously, we are watching that quite carefully… It’s a very tight market. So prices might keep going up for a while, even in a world where rates are up. So it’s a complicated situation and we watch it very carefully. I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

While Chairman Powell is “not really sure” about a lot, others are much more certain. For instance, David L. Steinbach, global chief investment officer and co-head of Investment Management of Hines stated: “I think we’re in for a rough few months, this year is going to be choppy. Higher inflation is without a doubt making its way into private real estate. The bidding pools are becoming thinner.” It is worth noting that Hines is one of the largest privately-held property owners and developers in the world.

On June 23, Lance Lambert from Fortune reported: “Between April 2022 and April 2023, CoreLogic predicts U.S. home prices are poised to rise another 5.9 percent. But not every housing market will be so lucky. Fortune reached out to CoreLogic to see if it would provide us with its assessment of the nation’s largest regional housing markets. Among the 392 regional housing markets it looked at, CoreLogic found 45 markets had a greater than 50 percent chance of seeing local home prices decline over the next 12 months. Last month, only 26 markets fell into that camp. That’s a 73 percent one-month jump.”

Yes, housing prices have been driven upwards due to market dynamics, and yes, prices have been clearly inflated. It is true we are facing a housing shortage, and the lack of housing supply is very real. Estimates peg the actual number at 4 million units. In other words, we need 4 million more houses to meet demand. Even NPR reported about it: this past March, NPR correspondent Chris Arnold wrote: “The Housing Shortage Is Significant. It’s Acute For Small, Entry-Level Homes. And that’s the main reason we’ve ended up millions of homes short—builders for many years just weren’t building enough to keep up with demand. That lack of supply has pushed home prices to record levels—up nearly 20 percent last year alone.”

It has been said by numerous housing experts and analysts that the U.S. housing market has about two months of housing supply available. An oversupply of housing could occur at six months of supply. This leads one to believe that housing prices will fall once we reach an oversupply; if a recession occurs before the oversupply occurs, problem averted.

The only thing that worries me is the lack of brinkmanship and strategy in the Fed. Will they be able to navigate all of the moving parts? Housing is already unaffordable across the country; even rent is expensive. According to the Bureau of Labor Statistics, rent increased last year by 4 percent, surpassing the 3.3 percent annual average increase.

This is a reprint from the original article by Chadwick Hagan, June 2022.

Japan: The economy likely rebounded in Q2. The recovery’s spearhead will have been consumer spending. Most Covid-19 restrictions were removed in late March, helping to push the services PMI up to the highest level since 2013. Rising inflation may have dragged on private spending toward the end of the quarter—consumer confidence fell in June—but consumption is expected to have accelerated in Q2 overall. Less positively, the external sector likely dented growth, due to supply constraints and a slowing global economy. The trade deficit was the highest in more than eight years in the quarter, while industrial production contracted at the sharpest rate in two years in May. In politics, the prime minister’s party won a majority in elections for the upper house on 12 July, allowing him to press ahead with key policies such as increasing defense spending and reforms to boost wage growth. Growth should be stable this year, with looser Covid-19 restrictions bolstering private consumption. That said, our panelists project that the economy will remain below its pre-pandemic level at the end of 2022; a weaker external sector should cap momentum. Key risks to the outlook include rising inflation and increased supply bottlenecks. FocusEconomics panelists see the economy expanding 1.7% in 2022, which is down 0.1 percentage points from last month’s forecast, and 1.6% in 2023.

United Kingdom: The economy likely registered a muted performance in Q2 amid higher inflation, record-low consumer sentiment and tighter financial conditions. That said, recent GDP data for May surprised markets on the upside, with the economy logging 0.5% month-on-month growth. Together with an upward revision to April’s contraction in GDP, this paints a less negative-than-previously anticipated picture of economic activity in early and mid-Q2. Turning to Q3, services and manufacturing PMI data points to a loss of steam. In politics, in early July, Boris Johnson resigned as the Conservative Party leader, and announced he will step down as prime minister after a new Conservative leader is chosen on 5 September. Ex- Chancellor Rishi Sunak and Foreign Secretary Liz Truss are the final two candidates, with Sunak prioritizing fiscal restraint if elected and Truss promising immediate tax cuts. This year, growth will weaken notably due to multi-decade high inflation and higher interest rates. Upside inflation shocks and faster-than- expected rate hikes pose downside risks, while extra fiscal stimulus is an upside risk. Tensions over Northern Ireland, which could result in the suspension of the Brexit trade deal or the imposition of EU tariffs, cloud the outlook. FocusEconomics panelists expect the economy to expand 3.4% in 2022, which is down 0.1 percentage points from last month’s forecast, and 0.8% in 2023.

United States: The economy is forecast to have returned to growth in Q2 as the contributions from net exports, government spending and inventories improved. Moreover, underlying domestic activity appeared fairly robust in the face of rising inflation and interest rates. Monthly job gains beat market expectations throughout the quarter, with growth particularly strong in contact-intensive sectors which had previously been impacted by Covid-19. Meanwhile, retail sales posted strong gains in April and June, likely aided by accumulated savings and notwithstanding lower consumer confidence. In addition, the composite PMI averaged only slightly below its Q1 level in Q2. However, momentum appeared to weaken at the outset of Q3, with the Composite PMI—which covers both the manufacturing and services sectors—dipping into contractionary territory in July. Growth will weaken in 2022 from 2021 on aggressive Fed hikes, and panelists have now downgraded their 2022 growth forecast by 1.5 percentage points since the start of the year. That said, the robust labor market and strong energy exports will provide support. A continued rise in inflation and faster-than-expected Fed tightening are key risks to the outlook. FocusEconomics panelists see GDP growing 2.3% in 2022, which is down 0.3 percentage points from the previous month’s forecast. In 2023, our panel sees the economy expanding 1.3%.

Switzerland: Economic growth accelerated in Q1 from Q4, amid faster expansions in private and government consumption. In contrast, fixed investment declined due to lower investment in equipment and construction, while export and import growth slowed. Turning to Q2, the economy likely lost steam. Both the manufacturing and services PMIs, as well as the KOF Barometer, averaged lower in Q2 relative to Q1. That said, all three indicators still pointed to an ongoing expansion in activity. Moreover, unemployment fell to an over two-decade low in June, and all Covid-19 restrictions were lifted in the quarter. Plus, inflation was close to a third of the euro area average in Q2. These factors should have propped up household spending, notwithstanding weaker consumer sentiment. GDP growth will slow this year on milder expansions in exports and government spending. However, lower unemployment and the removal of all pandemic-related restrictions will keep overall growth above its long-term potential. Interest rate hikes and the gradual weakening of trade links with the EU in the absence of a revamped trade deal cloud the outlook. FocusEconomics Consensus Forecast panelists project the economy to expand 2.5% in 2022, which is unchanged from the previous month’s forecast, and 1.4% in 2023.

Euro Area: The economy likely lost steam in Q2. Shrinking retail sales in sequential terms in April–May, and falling consumer confidence amid soaring inflation throughout the quarter, mean household spending was likely subdued. Moreover, weaker business confidence and lower manufacturing PMI prints suggest that soaring input and logistics prices, coupled with supply shortages, hit the secondary sector. That said, some support to growth will have come from a falling unemployment rate and recovering tourism sectors in Mediterranean countries. In other news, on 21 July flows of Russian gas via the Nord Stream I pipeline resumed, but at reduced volumes. Meanwhile, EU countries reached an agreement to reduce gas demand by 15% this winter to face possible supply cuts from Russia. In politics, Italy’s government fell on 21 July, with new elections due for 25 September. The prime minister will carry on in a caretaker role until then. GDP will expand at a milder pace this year. Depressed confidence, supply chain disruptions, higher commodity prices and rising interest rates will limit growth. That said, a recovering tourism sector, lower unemployment and EU funds disbursements should support activity. Financial instability risks stemming from high public debts and gas rationing cloud the outlook. The economy is seen expanding 2.6% in 2022, which is unchanged from last month’s forecast. In 2023, GDP is seen increasing 1.5%.

(c) FocusEconomics 2022

ISSN 2013-648X

United Kingdom

Growth was seemingly solid in Q1, as the progressive removal of virtually all Covid-19 restrictions supported the services sector. The economy clocked back-to-back monthly growth in January and February, while the labor market strengthened in Q1, with job vacancies at a record high and brisk employment growth in the quarter as a whole. Less positively, surging domestic inflation and a darkening international panorama are dragging on activity heading into Q2. In April, the Composite PMI dropped, and consumer sentiment tumbled to an over-decade low, boding poorly for private spending. The measures taken so far by the government— including a fuel duty cut and tax rebates—are insufficient to offset the hit to households’ purchasing power from higher inflation. In politics, Prime Minister Boris Johnson was recently fined over breaking lockdown rules. However, he is likely to remain in his post.

This year, growth will slow substantially due to intense inflation and tighter monetary policy. Protracted conflict in Ukraine and further Covid-19 variants pose downside risks, while possible further fiscal support is an upside risk. While trade tensions with the EU—particularly over Northern Ireland—have taken a backseat due to the war, they still cloud the outlook. FocusEconomics panelists expect the economy to expand 3.8% in 2022, which is down 0.2 percentage points from last month’s forecast, and 1.7% in 2023. 

Inflation increased to 7.0% in March, above February’s 6.2% and the Bank of England’s 2.0% target, and higher than market expectations. March’s result was the highest inflation rate since March 1992. Looking forward, inflation is set to rise further in the coming months due to the large re-rating of the energy price cap from April, as well as high energy and food prices. FocusEconomics Consensus Forecast panelists expect inflation to average 7.1% in 2022, which is up 0.8 percentage points from last month’s forecast, and 3.5% in 2023. 

On 17 March, the Bank of England (BoE) increased the bank rate from 0.50% to 0.75%, marking the third successive rate hike. The Bank’s decision was driven by the desire to rein in surging inflation. While the Bank’s forward guidance was more dovish than at the previous meeting, further rate hikes are still expected later this year in order to quell inflation. FocusEconomics Consensus Forecast panelists see the bank rate ending 2022 at 1.32% and 2023 at 1.63%. 

The pound traded at USD 1.26 per GBP on 29 April, depreciating 4.4% month on month, amid concerns over global growth and expectations of aggressive Fed tightening. Our panelists see the pound strengthening slightly against the dollar by the end of this year, although the hawkish Fed and tensions with the EU continue to pose downside risks. The Consensus is for the pound to end 2022 at USD 1.34 per GBP and 2023 at USD 1.38 per GBP.

United States

The economy contracted slightly in Q1 according to preliminary data. Declines in federal, state and local government spending were partly to blame, with federal spending dampened by the winding-down of government support programs and lower defense expenditure. Lower private inventory investment and booming imports also weighed on the GDP reading. However, underlying dynamics were more encouraging: A red-hot labor market kept consumer spending growing briskly despite surging inflation and Omicron infections, while fixed investment growth sped up. Turning to the second quarter, GDP is expected to bounce back as the contribution of net trade improves. However, domestic demand is likely easing amid skyrocketing inflation and higher interest rates. Indeed, the S&P Global Composite PMI dipped to a three-month low in April on a softer services sector. Consumer confidence also ticked down in the month. 

Growth is projected to slow in 2022 due to surging inflation and much tighter monetary policy. That said, low unemployment should support private consumption, investment should stay fairly healthy, and the energy sector will be boosted by the Ukraine war. Uncertainty over new Covid-19 variants, an intensification of the war, and tensions with China are risks. FocusEconomics panelists see GDP growing 3.2% in 2022, which is down 0.2 percentage points from the previous month’s forecast. In 2023, our panel sees the economy expanding 2.2%. 

Inflation rose to 8.6% in March from February’s 7.9%, marking the highest reading in decades and way beyond the Fed’s 2.0% target. Price pressures in recent months have been spurred by tight labor market conditions and pricier food and energy. Inflation is expected to remain well above target in the coming quarters amid ongoing high commodity prices and supply constraints. FocusEconomics panelists see inflation averaging 7.1% in 2022, which is up 0.8 percentage points from last month. In 2023, our panel expects inflation to average 3.1%. 

At its 15–16 March meeting, the Fed raised the target range from 0.00%– 0.25% to 0.25%–0.50%, in a bid to tame price pressures. The move was in line with market expectations. Our panelists expect aggressive monetary tightening over the coming months, starting at the next meeting in early May, as the Fed tries to get a grip on inflation and inflation expectations. Our panelists project the federal funds rate to end 2022 at 2.27% and 2023 at 2.73%. • On 29 April, the dollar index traded at 98.8, up 2.3% month on month on a hawkish Fed and concerns over the global economic outlook as China’s economy entered a lockdown-induced downturn. Looking ahead, geopolitical tensions, the health of the global economy and the trajectory of U.S. rates will be key determinants of the dollar’s strength.  

Thank you Focus Economics

 

China’s Bid for World Domination: Belt and Road Initiative

by Chadwick Hagan

Published by The Epoch Times

The Belt and Road Initiative (BRI) is an internationally planned infrastructure development project for China and the emerging economies that trade with or border China. It is a move designed to recapture the ancient Silk Road and expand China’s influence. Critics say the BRI projects present dangers to participating countries, such as debt traps.

The original Silk Road lasted until the 15th century. It was a vast trade network that began in the Far East and ended in Europe, winding through the countries of modern-day Afghanistan, Kazakhstan, Korea, Kyrgyzstan, India, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan. Today this area is ground zero for China’s BRI.

Originally called “One Belt, One Road,” China’s BRI combines the Silk Road Economic Belt, which has six development corridors: the New Eurasian Land Bridge Economic Corridor (NELBEC); the China–Mongolia–Russia Economic Corridor (CMREC); the China-Central Asia–West Asia Economic Corridor (CCWAEC); the China–Indochina Peninsula Economic Corridor (CICPEC); the Bangladesh–China–India–Myanmar Economic Corridor (BCIMEC); and the China–Pakistan Economic Corridor (CPEC). This is combined with the 21st century Maritime Silk Road, which begins in the South China Sea, flows through the Red Sea, and ends in the Mediterranean. Both roads end in Rotterdam.

The BRI is the most ambitious economic development and infrastructure project we have ever seen. Infinitely larger than the Suez Canal and the Panama Canal, the BRI aims to connect large swaths of land across China’s border and promote massive infrastructure developments.

Read more at The Epoch Times

“Sri Lanka warned of an unprecedented default and halted payments on foreign debt, an extraordinary step taken to preserve its dwindling dollar stockpile for essential food and fuel imports.”

-Asantha Sirimanne @ Bloomberg

It’s not everyday that you see a country default on debt payments. Sri Lankan officials have stated they are hoarding cash to buy food and essential supplies for the country.  

Here is a link to the official release from Sri Lanka’s Treasury. 

Outlook deteriorates

After GDP growth accelerated in Q4 due to stronger domestic demand, momentum has likely waned in Q1 as the latest Covid-19 wave and elevated price pressures drag on economic sentiment. Nevertheless, growth should have remained relatively healthy. The unemployment rate ticked up in January and consumer confidence continued to fall in February, which should be dragging on private consumption somewhat. Moreover, the manufacturing PMI averaged lower in January–February relative to Q4.

Meanwhile, the Chicago Fed National Activity Index—a leading indicator for GDP—eased in February, but continued to suggest a pick up in activity in sequential terms. On a brighter note, in February the labor market tightened and industrial production growth gained momentum. In other news, the U.S. continued to toughen sanctions on Russia in recent weeks, while also warning Beijing against providing military assistance to Russia.

GDP growth is projected to increase at a softer pace in 2022 due to a less favorable base effect. That said, activity should remain strong as upbeat private spending and investment support domestic demand conditions. Uncertainty over new Covid-19 variants, tighter monetary policy and ongoing tense relations with China pose downside risks. FocusEconomics panelists see GDP growing 3.4% in 2022, which is down 0.3 percentage points from the previous month’s forecast. In 2023, our panel sees the economy expanding 2.4%.

Inflation increased to 7.9% in February from 7.5% in January. Inflation is seen overshooting the Fed’s 2.0% target in 2022 due to a healthier domestic economy. Moreover, inflation is expected to accelerate from last year’s level as elevated commodity prices and some renewed supply chain disruptions stoke price pressures. FocusEconomics panelists see inflation averaging 6.3% in 2022, which is up 1.3 percentage points from last month. In 2023, our panel expects inflation to average 2.7%.

At its 15–16 March meeting, the Fed raised the target range from 0.00%– 0.25% to 0.25%–0.50%, in a bid to tame price pressures. The move was in line with market expectations. Moreover, the Fed said that its decision to reduce its QE purchases will be determined later this year. The majority of our panelists see several more rate hikes before the end of the year. Our panelists project the federal funds rate to end 2022 at 1.73% and 2023 at 2.39%.

The dollar index strengthened in recent weeks, likely due to a more hawkish Fed and market expectations for more rate hikes in 2022 than previously expected. On 25 March, the dollar index traded at 98.8, up 2.3% month-on-month. Looking ahead, the course of the pandemic, geopolitical tensions and the trajectory of the U.S. 10-year yield rate are factors to watch.

REAL SECTOR |

ISM manufacturing index increases in February The Institute for Supply Management (ISM) manufacturing index increased from 57.6 in January to 58.6 in February. Consequently, the index moved further above the 50-threshold signaling a slightly stronger improvement in manufacturing activity over the previous month. February’s stronger expansion was predominately driven by higher new orders and production growth relative to the previous month. That said, employment levels rose at a softer rate in February. Meanwhile, price pressures also increased at a slower pace in February. FocusEconomics Consensus Forecast panelists expect industrial production to increase 4.1% in 2022, which is down 0.1 percentage points from last month’s forecast. In 2023, panelists see industrial production rising 2.2%. FocusEconomics Consensus Forecast panelists expect GDP to grow 3.4% in 2022, which is down 0.3 percentage points from last month’s estimate. For 2023, the panel expects the economy to expand 2.4%.

Retail sales growth moderates notably in February Retail sales increased 0.3% in month-on-month seasonally-adjusted terms in February, which was softer than January’s 4.9% jump. February’s moderation was primarily due to a weaker rise in purchases of automobiles, while purchases of food and beverages declined relative to the previous month. On an annual basis, retail sales rose 17.6% in February, which was up from January’s 14.0% expansion. Meanwhile, annual average retail sales growth rose to 20.7% in February (January: +19.8%). Commenting on the latest print with regards to the monetary policy outlook, Katherine Judge, senior economist at CIBC World Markets, noted: “The January revisions show that the US economy was even more resilient during Omicron than thought, and add to the urgency for Fed rate hikes, as we expect the weak goods print for February to be offset by renewed demand for services as Omicron faded. The control group of sales is still 16% above where its pre-pandemic trend growth rate would have put it as of February, and we expect that degree of excess on the goods side of the economy to be pared back as services demand accelerates.” FocusEconomics Consensus Forecast panelists see private consumption growing 3.3% in 2022, which is down 0.3 percentage points from last month’s forecast. For 2023, the panel sees private consumption increasing 2.4%.

Labor market tightens further in February Total non-farm payrolls increased by 678,000 in February, following January’s 481,000 increase in payrolls. Employment gains occurred in professional and business services, and leisure and hospitality. The unemployment rate ticked down slightly from 4.0% in January to 3.8% in February, while the labor force participation rate increased to 62.3% in February—the highest level since March 2020—up from January’s 62.2%. Hourly earnings were flat month-on-month in February (January: +0.6% mom), while annual wage growth dipped to 5.1% from 5.5% in January.

After a soft Q4 outturn, most key indicators from the statistical office suggest a stronger start to 2022: January–February readings for industrial production, investment and retail sales were notably above market expectations. That said, the data is slightly difficult to reconcile with the ongoing steep property market downturn, and figures from other sources have been less rosy: The Caixin services PMI fell through February to a six-month low, while credit data slowed in February. Economic prospects darkened heading into March, as surging Covid-19 cases led to widening lockdowns across the country, affecting tens of millions of people. Plus, the Ukraine conflict has led to much higher global commodity prices, which could feed into domestic inflation. In politics, the government recently set a 5.5% GDP growth target for 2022, implying further stimulus measures ahead.

Growth is seen easing notably this year from last, amid a limp property sector and cooling export growth. That said, a ramping-up of stimulus measures should provide some support. Risks abound, chiefly the government’s tough stance regarding new Covid-19 cases, a deepening of the property crisis, and the Ukraine conflict—which could cause China-U.S. ties to fray further. FocusEconomics panelists expect GDP to expand 5.0% in 2022, which is down 0.1 percentage points from last month’s forecast. In 2023, the panel foresees GDP expanding 5.2%. 

Consumer inflation was unchanged at 0.9% in February, while producer inflation fell to 8.8% in February from January’s 9.1%. Consumer inflation is seen higher than its current level later this year on the recent surge in global commodity prices. However, stop-start Covid-19 restrictions are a downside risk. In contrast, producer inflation should ease on a base effect. Our panelists forecast that consumer inflation will average 2.2% in 2022, which is unchanged from last month’s estimate. In 2023, our panel sees inflation averaging 2.3%. 

The PBOC kept its key policy rate levers unchanged over the last month. That said, policy easing is highly likely ahead, in light of disappointing February credit data, the darkening economic panorama at home and abroad, and the slightly ambitious 5.5% growth target. Many panelists see cuts to the 7-Day Reverse Repo Rate and 1-Year Loan Prime Rate by year-end. Panelists project the 1-Year Deposit Rate to end 2022 at 1.49% and 2023 at 1.48%. • The PBOC allows the yuan (CNY) to trade within 2.0%, in either direction, of a daily reference rate. On 18 March, the yuan traded at CNY 6.36 per USD, down 0.6% month-on-month. The currency is seen weakening slightly by the end of this year, amid a projected cooling in external demand and as diverging monetary policy stances between China and the U.S. favor the USD. Our panelists see the yuan ending 2022 at CNY 6.46 per USD and 2023 at 6.43 per USD.

Report from Focus Economics April, 2022

Nickel prices averaged USD 24,016 per metric ton in February, which was 7.8% higher than January’s price of USD 22,285 per metric ton. February’s increase was largely attributed to lower stocks, amid heightened geopolitical tensions and demand for electric vehicles. The average price for nickel was up 29.2% from the same month last year. Moreover, on 28 February, nickel traded at USD 24,661 per metric ton, which was up 8.0% from the same day of the previous month.

Nickel prices surged in recent weeks, hitting another multi- year high at the end of February. As Russia, the third largest producer of the metal, invaded Ukraine, a backlash of sanctions and embargoes, such as Maersk’s refusal to ship to Russian ports and the UK’s decision to refuse Russian ships in its ports, likely fueled fears of disruptions to deliveries of the metal ahead. On the demand side, EV car sales remained healthy in recent weeks while stocks in the London Metal Exchange warehouses are reportedly down to nearly one- third of April 2021’s levels last year, seemingly adding further upside pressures to nickel price rally.

Nearly half of our panelists revised their forecasts upwards this month, while others took a wait-and-see approach amid fast-changing military conflict in Ukraine. Overall, prices are expected to cool from their current levels ahead, albeit remaining elevated nonetheless. Rising output for both nickel pig iron and battery-grade nickel will exert downward pressure on prices. That said, strong demand from the stainless steel industry—expected to be the main driver of nickel use in the near term—and rising appetite for EV batteries will sustain prices. Uncertainty stemming from the war in Ukraine is a key outlook risk. FocusEconomics panelists see nickel prices averaging USD 20,513 per metric ton in Q4 2022 and USD 19,014 per metric ton in Q4 2023.

This month, 7 panelists on our Consensus Forecast panel raised their Q4 2022 projections. Meanwhile, no panelists cut their forecasts and 8 left their forecasts unchanged from the previous month.

Focus Economics

Since the late 2010s there has been re- newed debate about the merits and demerits of progressive wealth taxation. This debate has largely been motivated by the increase in wealth concentration in recent decades. In the United States, the share of total household wealth owned by the 0.0001% wealthiest Americans—a group that includes 18 individuals with more than $50 billion in wealth in 2021—has been mul- tiplied tenfold since Forbes started publish- ing data on the richest Americans in 1982. Wealth concentration has increased partic- ularly fast during the Covid-19 pandemic (see Figure 1). All estimates show a dra- matic increase in wealth concentration since the late 1970s (see Saez and Zucman, 2020 for a discussion of the data and reconcili- ation of the various estimates). Moreover, as wealth concentrated, the ratio of wealth to national income doubled from less than 3 in the late 1970s to over 6 in 2021. Top- end wealth is large relative to the economy, and therefore a sizable potential tax rev- enue source (Saez and Zucman, 2019).

To shed light on the practicality and de- sirability of taxing wealth, this paper stud- ies the historical experience with wealth taxation in Europe. Using new research on the distribution of wealth over time in Eu- rope, we show that the European wealth taxes had a narrow base, due to large exemptions, tax avoidance, and tax eva- sion. We explain why such exemptions were granted and how they undermined Euro- pean wealth taxes, leading in many cases to their repeal.

Wealth Taxation: Lessons from History and Recent Developments (Emmanuel Saez / Gabriel Zucman)

1. Politics
Jair Bolsonaro will be defeated in Brazil's 2022 presidential election.

The US GOP will still suffer identity and leadership issues, despite a surge in conservative popularity.

Roe v Wade will suffer a defeat, adding to the GOPs identify issues going further.

The border will remain a political issue and will likely not improve during 2022.

American hegemony will take further hits, as battles with Russia and China continue on.

Boris will remain in power.

The UK monarchy will not fail.

2. Economics
American society will not become more equitable.

American jobs will continue to unbundle from the previous era's form of employment. More for less. 

In America, Cities will continue to step up to fill the void left from the lack of proper governance from states and the federal government. 

Influencers, a new phenomenon, will be replaced by virtual influencers. 

Work from home (WFH) will continue on, presenting new problems and new joys for the workforce, landlords and employers. 

Antitrust will prevail in the battle between politics and technology companies.

ETH will overtake BTC in usability, utility and eventually price per unit. 

NFTs are here to stay. 

Inflation will pass. 

3. Environment
Plastic will continue to come under fire and suffer bans en masse, but plastic companies will not stop making plastic (at least this year).

Ecocide will official become law in some nations.  

Animals rights will increase in the rich world and in developing nations dependent on tourism. 

 

 

A Legal Framework for Decentralized Autonomous Organizations

This analysis was written by David Kerr (Principal, Cowrie LLC) and Miles Jennings (General Counsel, Crypto, Andreessen Horowitz). Special thanks to Marc Boiron, Aaron Wright, Molly McQueen and Connor Spelliscy for their contributions and insights. David Kerr is a recipient of a research grant from the DAO Research Collective.

Introduction The United States regulatory environment surrounding digital assets presents an extraordinary challenge for blockchain and smart contract-based protocols. In the absence of comprehensive legislation addressing the complexities of this developing technology, individual regulatory agencies have been forced to provide their interpretations of how regulations should be applied to situations and technologies, well beyond what was considered when the current laws and regulations were enacted. Although it is universally agreed that comprehensive reform and new legislation is a necessity, the reality exists that the developers and users of blockchain technology have been left to navigate a patchwork regulatory environment insufficient to address relatively simple issues related to digital assets, let alone the additional complexity accompanying the decentralized alternatives to traditional financial service offerings available through smart contract-based protocols. The vast majority of blockchain networks and smart contract-based protocols are organized as, or intend to implement, DAOs, which are member controlled organizational structures that operate absent a centralized authority. 3 While blockchain networks utilize a number of different consensus mechanisms, DAOs of smart contract-based protocols are typically facilitated by a set of governance-related smart contracts that have specified control rights with respect to the smart contracts making up the underlying protocol, all of which are built on distributed ledger technology, most commonly the Ethereum blockchain. These governance smart contracts disintermediate transactions between counterparties by automating the decision-making and administrative processes typically performed by traditional management structures. Decentralization of a given protocol occurs when control (e.g., governance) of the non-immutable aspects of a protocol’s smart contracts is passed from the developers to the members of a DAO via the activation of governance smart contracts. Decentralized Finance (“DeFi”) protocols are one example of smart contract-based protocols. DeFi protocols provide alternative mechanisms to perform many traditional financial services that are, often times, highly regulated themselves (i.e., payments, swaps and derivative transactions, insurance, asset trading, lending and investing). As the functionality of many DeFi protocols deviates significantly from traditional financial services, significant interpretive obstacles exist in determining the manner and extent that existing statutory authority is applicable. Although the SEC, CFTC, FinCEN, OFAC, IRS, Department of Treasury and state regulators have issued guidance and interpretations concerning digital assets, the issues highlighted in that guidance and the concentration of accompanying enforcement actions has resulted in a prioritization of the following: (i) identifying the applicability of SEC and CFTC registration requirements, (ii) taxation of virtual currency as property and the need for taxpayers to include virtual currency activities on their tax returns and (iii) the implementation of BSA compliant Anti-Money Laundering (“AML”) and Know Your Customer (“KYC”) programs.

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