NEWS TO BANK ON
Mark Carney and Bank of England colleagues will decide on key lending rate, and three other happenings this week.
The EU’s crippling lack of stimulus Christine Lagarde, managing director of the International Monetary Fund (IMF) and among the halfdozen most powerful people in global finance, is in Toronto as headline speaker at the International Economic Forum of the Americas on Monday and Tuesday.
On Wednesday, Jean-Claude Juncker, president of the European Commission, will give a state-ofthe-union-style speech about the troubled European Union (EU) at the European Parliament in Strasbourg, France.
And on Friday, EU leaders meet for a one-day session on the aftermath of the Brexit vote. On the agenda of that confab is a discussion on ways to make the EU more relevant to voters, which apparently no one thought to do when the EU and later, the eurozone, were created.
Leaders at all three of these summits will be distracted by talk of Brexit. Actually, it won’t be evident what’s to become of the EU and global trade until three to five years post-Brexit.
Meanwhile, it’s obvious right now that the EU continues to suffer stagnant growth for lack of stimulus spending.
On monetary policy, the European Central Bank, with its ultra-low interest rates and massive purchases of EU member-country debt, is doing its job to revive the bloc. But for lack of a stimulus fiscal policy, which falls to the EU member countries, EU growth continues its malaise.
And, in a roundabout way, that failure is mostly what caused the Brexit in the first place. It was the austerity-stricken parts of Britain that voted most heavily against an unpopular British government’s plea that they support continued membership in the EU, rather than ending Britain’s 41-year role in shaping postwar Europe very much to the U.K.’s advantage. Inconvenient truths about Brexit On Thursday, governor Mark Car- ney and his colleagues at the Bank of England are expected to keep the bank’s key lending rate at its current record low of 0.25 per cent. Carney is also expected to keep buying vast amounts of British debt, a backdoor stimulus that will top out at a staggering $747 billion if need be.
The Leave side feels vindicated that Britain’s noncatastrophic economic performance since the Brexit vote shows the doomsayers in the Remain camp have wildly exaggerated the downside of quitting the EU. Actually, Carney alone has had much to do with keeping the ceiling from crashing down on the British economy. And that’s not sustainable.
Meanwhile, Canada and Australia have been rushing expert trade negotiators to London to help Brit- ish PM Theresa May’s government hammer out the Brexit terms and possible bilateral trade pacts, with Australia first up.
The Leave side didn’t realize that after four decades in the EU, Britain lacks trade negotiators, a skill long delegated to the EU’s Brussels administrative HQ.
All to say that, plugging a selfexiled Britain into a new network of one-off trade deals with the U.S. (possibly headed by an anti-trade in president Donald Trump), Canada (which will put its forthcoming trade deal with the EU ahead of one with Britain) and various other countries will be tougher than the Leavers imagined. Aglimmer of hope for the oilpatch The latest U.S. jobs report shows an uptick in employment in the oil and gas extraction sector for August, after 12 consecutive months of decline.
It also shows a loss of 5,200 jobs in support activities for mining, about three-quarters of which is oil and gas-related. That was one of the mildest drops of the year.
Now add in signs of weakening resolve among OPEC producers in continuing to wage the marketshare war against U.S. frackers launched by Saudi Arabia in 2014, which sent the world price tumbling, and you have a credible scenario for benchmark West Texas Intermediate oil to stay within its current trading range of between $40 (U.S.) and $50 a barrel.
That might even turn out to be a floor, from which prices can gradually climb to somewhere north of $70. It’s also worth noting that the predicted epidemic of insolvencies among the plethora of small and mid-size U.S. oil and gas producers hasn’t come to pass. (There have been victims, to be sure, but far fewer than expected.)
Canadian and U.S. banks have already taken their hit on soured oilpatch loans, and Canada’s Big Five banks just posted lavish earnings in the latest quarter in the absence of any further oilpatchrelated loan-loss provisions.
Admittedly, these are thin reeds to lean on. But at least the circumstantial evidence is no longer pointing at worse things to come. Milestones On Wednesday, Aung San Suu Kyi meets with U.S. President Barack Obama in Washington, her first U.S. state visit since her party took control of Burma earlier this year. This is the culmination of the easing of U.S. sanctions aimed at isolating the previous military junta that long ruled Burma.
Burma is a second country long hostile to the U.S. that has commenced healthy relations with America on Obama’s watch, the other being Cuba.
These successes in “soft power” diplomacy are not, of course, central in the foreign-policy debate in the current U.S. election. A shame.