Oct 18, 2019

Axios Markets

Today and tomorrow I'll be hosting the Institute of International Finance's annual membership meeting (in the afternoon today and in the morning tomorrow). Drop by and say hello.

Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,070 words, 4 minutes.)

Situational awareness:

  • China's GDP report missed expectations, slipping in Q3 along with investment growth, but industrial production rose and retail sales were solid. (Bloomberg)
  • AT&T delayed its earnings report as a result of ongoing talks with Elliott Management to resolve the activist investor’s campaign to make major changes. (WSJ)
  • “Axios on HBO” returns this Sunday! This week: Sen. Lindsey Graham and Sen. Mitt Romney talk impeachment, and then the economists behind Sen. Elizabeth Warren's "ultra-millionaire tax" give us an inside look into the plan. Plus, we take a dive into the future of esports. I'm told I made the final cut, so tune in at 6pm ET/PT on HBO.
1 big thing: Women's equality reframed

Illustration: Aïda Amer/Axios

Slowing global growth and stagnating investment returns have created a fertile environment for a novel idea: gender equality. It has been front and center at the autumn IMF-World Bank meetings — now framed not as an altruistic appeal, but as an economic imperative.

Why it matters: New IMF managing director Kristalina Georgieva looks to be bringing that imperative to the economic policy focused Fund rather than the philanthropically minded Bank, a major change for how issues of diversity and equality are viewed.

  • Among her top structural reforms, "opening up more space for women to participate in the labor market," Georgieva said during a panel on the global economy Thursday.
  • Not only has she stressed equal opportunities for women and girls in her remarks, it is also included in the Fund's official literature as a top priority for improving economic outcomes.

Why now: "Gender inequality hampers global growth and causes women to take on more debt, have lower pensions and higher poverty risk," State Street Global Investors senior managing director Amlan Roy declared in a presentation during the National Association of Business Economists conference earlier this month.

  • "The elimination of gender inequality is essential for macro growth, development and long-term economic welfare."

By the numbers: A study by S&P Global presented at the World Economic Forum this year found that by increasing women's numbers in the labor force the U.S. could contribute $4.5 trillion in market value, and that could have ripple effects that reach around the world.

  • An S&P study released Wednesday finds that firms with female CFOs were more profitable, generating profits well above the market average.

There is a clear message being sent. Not only was the first session Georgieva took part in as managing director titled "Women, Work, and Leadership" (and "not by chance" she told attendees), there has been an assortment of IMF presentations and panels dedicated to promoting women's opportunities.

What's next: A session this afternoon called "Unleashing the Potential of Women Entrepreneurs Through Finance and Markets" will feature the sole public appearance by Goldman Sachs CEO David Solomon at the meetings along with Santander Bank executive chairman Ana Botín and World Bank President David Malpass.

2. Larry Summers does not like the wealth tax one bit
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Adapted from Emmanuel Saez, 2019, "Taxation of Financial Capital: Is the Wealth Tax the Solution?; Chart: Andrew Witherspoon/Axios

A Twitter debate about the veracity of an economic study projecting the outrageously low tax rates of billionaires turned into a verbal street brawl at the Peterson Institute for International Economics in Washington Thursday.

Background: Criticism has been heaped on a Washington Post op-ed by Emmanuel Saez and Gabriel Zucman purporting to show that for the first time in U.S. history billionaires paid a lower tax rate than the working class.

  • Critics have taken issue with the study's conclusions and methodology.

What happened: Economist Larry Summers tore down the study and its co-author Saez, who was in attendance, like a disrespectful step-daddy during a presentation and panel discussion.

  • "I find myself persuaded by [Saez and Zucman’s] critics that the data are substantially inaccurate and substantially misleading."
  • "I used their algorithm on my tax return to figure out my wealth and it was not within a country mile of reality."

The former Treasury Secretary and head of the National Economic Council was far from finished.

  • "I do not think a focus on wealth inequality as a basis for being concerned about a more just society is terribly well designed," Summers continued, noting that he believed Saez and Zucman had overestimated "by a third" the amount of wealth held by American billionaires and that he doubted the tax would deliver "even half of their wealth figure."

Between the lines: Summers seemed to "take it really personally," Saez told Axios after the panel discussion.

Of note: Harvard economist N. Gregory Mankiw, who served in the administration of President George W. Bush presented a 12-minute lecture that lent support to Andrew Yang's universal basic income proposal.

  • "I don't know Andrew Yang at all, so I'm not endorsing him," he told Axios after the event. "But universal basic income, which provides a fairly robust safety net for people at the bottom of the economic ladder, to me makes sense."
3. The ups and downs of the British pound
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Data: Money.net; Chart: Axios Visuals

The British pound jumped to a fresh 5-month high on news that a Brexit deal had been reached between U.K. and European Commission negotiators, but petered out nearly as quickly after Northern Irish party the DUP said it would not vote for the deal.

The big picture: Sterling fell back below $1.28 before steadying again, closing closer to its highs on the day than its lows as investors retained some optimism.

  • "We think that the gains in sterling are sustainable because even though Prime Minister Boris Johnson faces an uphill battle to collect all of the votes needed from lawmakers to seal the deal, members of Parliament won't want to risk another 3 years of policy gridlock or worse — an unruly no-deal Brexit," said Kathy Lien, managing director of FX strategy at BK Asset Management.
  • "This is the closest we've been to an orderly exit in years and probably the best deal they'll get from the EU."
4. Turkish lira rises on ceasefire, but gains look unsustainable
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Data: Money.net; Chart: Axios Visuals

The Turkish lira strengthened against the dollar on Thursday after Turkey agreed to pause its offensive in Syria for 5 days to let Kurdish forces withdraw from a “safe zone" Turkey has established.

The big picture: Neither the ceasefire nor the bullish run that Turkey's bonds and currency have seen recently is sustainable, Petar Atanasov, co-head of sovereign research at emerging markets asset manager Gramercy, tells Axios.

  • "There are risks and fragilities in the Turkish economy that probably are not a problem now but they will over time become more serious if the policy trajectory is not adjusted."

The big economic risk is that the removal of the threat of sanctions from the U.S. will give Turkey's central bank cover to continue cutting interest rates to a level below inflation, stamping out a meaningful recovery in its current account and leading to another pickup in inflation.

  • "So in some ways today's detente, if it holds, actually is laying the seeds for currency weakness over the next 3 to 6 months, because the odds that the central bank overplays its hand has increased," Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle, tells Axios.

Details: The lira has fallen by more than 10% so far this year, despite efforts by the central bank and Turkish President Recep Tayyip Erdoğan to hold it steady.

  • However, it has risen meaningfully from its all-time low hit in August 2018. Turkish state-owned banks have been buying the currency since the Syria incursion began last week, bankers and strategists said, and are expected to continue.
5. Super exciting news
Screenshot of a tweet from Twitter user Dani Fava.

Companies have been more "super excited" during earnings calls over the last few years. Unfortunately, the excitement looks to be fading in 2019.