Latest news with #globaleconomy
Bloomberg
a day ago
- Business
- Bloomberg
Gaming Out How the World Might React to Trump's Tariffs
The world is watching and waiting to see just how President Donald Trump chooses to deliver on his threats to increase tariffs Aug. 1. That implies a certain helplessness outside the US. And yet how the rest of the world reacts to what is already the biggest turn in American protectionism since 1930 may end up defining the consequences for the global economy as much as Trump's salvos. That's why the debates now happening in Europe over how to respond to Trump's impending escalation matter so much.
Bloomberg
2 days ago
- Business
- Bloomberg
Are Central Banks Ready for AI to Rewrite the Rules of the Economy?
How will artificial intelligence reshape the global economy, central banking and financial forecasting? Larry Summers explains that AI could raise the neutral interest rate and productivity, while also introducing more uncertainty into economic modeling. Sascha Steffen of the Frankfurt School of Finance and Management adds that AI can dramatically improve forecasting accuracy and data frequency, but introduce new risks like systemic amplification, model bias and lack of transparency. (Source: Bloomberg)
ABC News
4 days ago
- Business
- ABC News
Australia's $4 trillion superannuation sector exposed to 'devastating' bond market run
Millions of Australians in or approaching retirement are potentially exposed to enormous financial insecurity. The insecurity is connected to the global bond market. Let me explain. In early August last year, the Australian share market plunged after the unwinding of the Japanese carry trade, which involves borrowing the yen at a low cost to invest in other higher-yielding currencies and assets. It sounds complicated but it's not. Worse-than-expected US employment figures had investors worried that the world's biggest economy was heading toward recession. This caused investors to sell US stocks, because they thought companies across America would lose value. Separately, and earlier, in July, Japan unexpectedly raised interest rates from nothing to 0.1 per cent. Global financiers had been borrowing money from Japan (essentially for free) and using it to buy US stocks. That trade started to look less attractive as investors stared down the barrel of higher Japanese borrowing costs and falling US stocks. As more investors unwound their positions, some panic started to set in and there was a mass exodus out of stocks. That investment environment is emerging again, and Australian investors are looking vulnerable. The issue this time around is not an unexpected increase in Japanese interest rates or weaker-than-expected US economic data. It's nervousness around this weekend's Japanese election. The ruling coalition needs to win 50 seats of the 125 up for grabs to retain its majority. Prime Minister Shigeru Ishiba's Liberal Democratic Party (LDP), which has ruled for most of the post-war period, and its partner Komeito, are forecast to lose their majority. Adding risk, opposition parties are advocating fiscal largesse, which could exacerbate mass selling of Japan's government bonds. Governments sell bonds to raise money for spending. This puts downwards pressure on bond prices and upwards pressure on yields or interest rates. Bond prices move in the opposite direction to yields. So, if there's a sudden spike in Japanese bond yields, Japanese investors may redirect hundreds of billions of dollars away from US bonds and stocks and back into more higher-returning Japanese assets. In a worst-case scenario, some analysts say Ishiba may have to resign, exacerbating higher bond yields amid political turmoil. "If he had an overwhelming loss, I think he would have to resign," David Boling, director for Japan and Asian Trade at political risk consultancy Eurasia Group told Reuters. This would be especially awkward for global financial markets to grapple with as Tokyo heads for an August 1 deadline to win reprieve from punishing import levies set by its largest trading partner, the United States. The United States is also, again, at risk of another financial shock originating from Japan. The central question is whether investors pull their money out of the US and head for Japan. "Rising long term bond yields in Japan on the back of concerns about high Japanese government debt and an eventual further Bank of Japan rate hikes pose some threat to US shares," AMP's head of investment strategy Shane Oliver told the ABC. "[That's] because if it continues it could reduce the flow of capital into the US which of course is needed to keep funding the US budget deficit." Concerns over US government debt, including from the passing of the Big Beautiful Bill, which could increase the US deficit by trillions of dollars over 10 years, have already pushed US government bond yields up to multi-year highs. Yields rise as investors see higher risk attached to the associated bonds. But yields have been held relatively low given the amount of money coming in from countries like Japan. As at June 2025, Japan held $US1.1 trillion in US Treasury bonds. But if Japanese investors dump US bonds, and head home, this could cause US Treasury bond yields to spike. "Currently, for now, there is limited evidence of deleveraging," funds manager Geoff Wilson told the ABC. In other words, investors are not yet dumping US bonds in a hurry, but they are becoming less attractive by the day. "As for Japan, the concern is that Japanese investors have been the biggest buyers of global bonds for decades … and if they aren't willing to buy their own bonds, why would they buy foreign ones?" Founder of financial markets newsletter, Marcus Today, Marcus Padley witnessed the 1987 stock market crash unfold in real time from The City in London. He's on his toes for another such event. "It is a danger, but it's not clear that it's a present danger," Padley told the ABC. "The US can print its way out of anything. "But whilst we nudge all-time highs [on global stock markets], we have to have something to worry about. "This is it, until something more realistic comes along. "Whilst a run on the bond market would be devastating if it ever happened, it is extremely unlikely." There are three major risks for financial markets at present. First, is evidence the US economy is faltering combined with tariff-induced higher inflation. Second, is the potential sacking of the US Federal Reserve Chair Jerome Powell by US President Donald Trump. Third, is a significant spike in Japanese bond yields following this weekend's election. Any of these risks have the potential to see Wall Street crash. The key is whether panic sets in among investors. "Weakness in US and Japanese bond markets is a concern to stock investors if disorderly," Wilson said. And Jamieson Coote Bonds founder, Charlie Jamieson, sees a disorderly exit out of stocks and bonds as a risk. "Of course well-functioning bond markets are a critical piece of financial architecture," Jamieson said. "[Japan] needs to raise rates quickly to restore function to the markets, but they move very slowly after decades concern around deflation." The retirement savings of millions of Australians are on the line, in part because Australian superannuation funds are invested heavily in the record-breaking US stock market. The Association of Superannuation Funds of Australia (ASFA) said "it is expected that US$450 billion will be directed to US assets if they can deliver appropriate risk adjusted returns over the next 10 years." That represents 17 per cent of Australia's entire pool of superannuation — which currently sits just north of $4 trillion. ASFA says the investment, and the risk attached to it, is worth it. "This position gives Australian funds the ability to have direct conversations about the policy settings that best serve Australian workers and retirees, we saw this with the favourable changes our government was able to negotiate in the recent Big Beautiful Bill," ASFA CEO, Mary Delahunty, said in a statement. And the superannuation giants, ASFA says, are well placed to deal with market volatility. "Funds are well-equipped to withstand volatility through prudent investment strategies, scenario planning, stress-testing and strong regulatory oversight," Delahunty said. "Members can have confidence that their retirement savings are being managed for the long term and decisions on strategic asset allocation are considering the volatility risks in the US markets." There is one problem, though. The amount of leverage or borrowing tied to bonds at present is inching closer to what we saw prior to the global financial crisis. Back then Main Street bailed out Wall Street, and central banks dropped interest rates to nothing and cranked up the money-printing machine. There's now far less political capital in 2025 to rescue the big end of town than there was in 2009.
Bloomberg
4 days ago
- Business
- Bloomberg
G-20 Seals Communique in Show of Unity Despite Trump Trade War
By S'thembile Cele, , and Ntando Thukwana Updated on Save The Group of 20 finance ministers and central bank chiefs committed to international policy cooperation in a communique adopted on Friday, finding rare consensus amid escalating tensions over the US trade war. 'The global economy is facing heightened uncertainty and complex challenges, including ongoing wars and conflicts, geopolitical and trade tension,' the communique said. 'We emphasize the importance of strengthening multilateral cooperation to address existing and emerging risks to the global economy.'
Bloomberg
4 days ago
- Business
- Bloomberg
G-20 Pledges to Strengthen Cooperation as It Seals Communique
Group of 20 finance ministers and central bank chiefs committed themselves to international policy cooperation in a communique they will adopt on Friday, according to people familiar with the deliberation. 'The global economy is facing heightened uncertainty and complex challenges, including ongoing wars and conflicts, geopolitical and trade tension,' the communique will say, according to the sources, who spoke on the condition of anonymity to discuss the closed-door deliberations.
