“Harvey the Strongest Storm…”

Harvey the strongest storm

Harvey was the strongest storm to hit the US since 2004 as it struck near Rockport as a Category 4 hurricane. The storm has hit a cluster of refineries that process 5 million barrels of oil a day. Its path through the gulf shuttered 24 percent of oil production. Although it continues to create havoc the full economic impact is still unclear with current estimates ranging from $30 billion to $ 100 billion making it the most expensive catastrophe since at least 1970. The storm is now hitting Louisiana a second time which was devastated by Hurricane Katrina in 2005. The number of confirmed deaths from Harvey has reached 21 on Wednesday according to the Associated Press. Furthermore flooding waters have heavily damaged tens of thousand of homes across Texas. The US gasoline prices rose for the sixth day and crude trade near the $47 per barrel as traders assessed supply and the risk to refineries before there was a second hit on Texas from Storm Harvey. In New York motor fuel prices rose 1.3 percent while crude futures traded near their lowest in five weeks. This month oil has almost lost 7 percent. Harvey has shuttered about 2.35 billion barrels a day of refining capacity so far. President Donald Trump promised emergency funding to help Texas recover from the Hurrican Harvey. At a briefing on Thursday the White House Press Secretary announced that President Donald Trump is pledging $1 million in personal money to Harvey storm relief efforts. Trump visited the region on Tuesday and plans to visit again on Saturday, visiting Houston and Louisiana. The White House promised to put the full resources of the federal government behind the recovery efforts.

North Korea ‘s Missile over Japan

On Tuesday North Korea fired an unidentified ballistic measure over Japan, which landed in the Pacific Ocean about 1,200 kilometers east of Japan’s northern island of Hokkaido. Both Prime Minister Shinzo Abe and President Donald Trump agreed to increase pressure on North Korea. In the hours after the launch neither the White House nor President Trump made any statement. This was the first North Korean projectile to fly over Japanese airspace since a rocket was launched in 2016 over Okinawa. South Korean stocks led the losses while the Kospi index lost as much as 1.6 percent before closing 0.2 percent lower. Safe haven assets such as gold, treasuries and the yen advanced. So far this year investors have been shrugging off the risk sending the Kospi up 17 percent, while the won has strengthened 7.2 percent making it the best performer after the Thai baht amongst the Asian emerging currencies. Fears that could trigger an aggressive response receded when the United Nations in a statement which was drafted by the United States condemned the latest missile launch by North Korea but held back any threat of new sanctions.

Brexit negotiations and the EU

As talks between the UK and the EU resumed, European Commission President Jean-Claude Juncker said, “there is still an enormous amount of issues that remain to be settled.” According to Juncker none of the position papers prepared by the UK government are satisfactory. As part of its withdrawal from the EU, the UK has published eleven documents outlining its positions in areas that range from data protection to nuclear safety and customs arrangements. Although the UK hoped the papers would help in their relationship with the EU, European diplomats criticized the documents as being unrealistic. No document has been produced related to the financial settlement, an area which the EU wants to discuss first. According to the chief negotiator Michel Barnier, “the sooner we remove the ambiguity the sooner we will be able to discuss the future relationship and a transitional period”. The EU however, is still sticking with the plan of first negotiating the divorce before moving on to the future relationship. The UK bill remains a main stumbling block.

Euro

The Euro has advanced to its strongest level in more than two years, hours after North Korea fired a ballistic missile over Japan. The currency has advanced more than 14 percent against the dollar this year on speculation that the European Central Bank will in autumn scale back its extraordinary package of quantitative-easing measures. US treasury yields declined by seven basis points to 2.09 percent while the German 10-year yields fell as much as five basis points to 0.32 percent the lowest since 27 June. In his meeting at Jackson Hole on Friday, ECB President Mario Draghi did not mention the appreciation of the EUR, however, the European Central Bank minutes from the last meeting held on 20 July show the concern of European Central bank officials.

Inflation in the EU

According to the European Union’s Statistics consumer prices rose 1.5 percent in August after a 1.3 percent in July, which is the highest reading in four months. The acceleration is almost attibuted to higher energy prices, and follows stronger than expected inflation readings from Germany and Spain earlier in the week. Economic confidence is at a decade high and the latest unemployment data which was published on Thursday show a rate of 9.1 percent. Yet this has not translated into signficant faster inflation and rising wages although the ECB has engaged in the EUR 2.3 trillion bond-buying program and implemented a negative interest rate. ECB officials are still to sit and discuss the future of the purchasing which is meant to expire at the end of the year. During his speech at Jackson Hole, ECB President Mario Draghi appeared to temper any expectations about winding down the bond-buying program and stated that” a significant degree of monetary accomodation” is still warranted. The EUR strengthtening is a topic of concern among EU officials.

China

The official chinese manufacturing purchasing managers index (PMI) rose to 51.7 in August from 51.4 in July. The non-manufacturing PMI fell to 53.4 in August from 54.5 in July. A figure over 50 indicates improving conditions while below 50 indicates worsening conditions. China’s official factory gauge has rebounded suggesting that the economy could remain robust giving the leeway to policy makers to continue curbing financial risks. Going forward policy makers have a challenge to stike a balance between the pace of growth and credit expansion.

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