G- Force

BRICS is an acronym for Brazil, Russia, India, China, and South Africa. The term ‘BRIC’ was originally developed in the context of foreign investment strategies by Jim O’Neill of Goldman Sachs in 2001 and evolved to include South Africa in 2010.

BRICS has recently held its latest conference in Johannesburg. However, Putin attended virtually to avoid being detained for war crimes, while Chinese president Xi Jinping, missed his scheduled speech perhaps due to China’s far more pressing economic problems?

The BRICS conference also coincided with India’s successful landing of a lunar rover on the Moon’s South Pole. With this, India joins an elite club of countries to have achieved a soft landing on the Moon, after the US, the former Soviet Union and China. How times have changed! By comparison, Russia’s attempted Moon landing ended in failure, perhaps a reflection of western sanctions and isolation from other space nations.

For years, the global economy and markets have been dominated by the G7 – Canada, France, Germany, Italy, Japan, the UK, and US. However, in a further sign of changing times some 22 nations have formally asked to be admitted to BRICS. In the latest development, Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates have been invited to join the economic organisation. The BRICS already represents some 41% of the world’s population and 26% of global GDP.

There is little doubt that Russia and China are trying to break the dominance and power of the US dollar as the world’s major trading currency. This coming weekend, the 2023 G20 New Delhi summit with heads of government are due to meet. Again, Russia’s President Putin and China’s President Xi Jinping, are not expected to attend. One wonders, what can the remaining 18 heads of government seek to achieve? In the current economic environment that is laced with political tension, what role and influence does the G20 and other summits have?

While China is suffering economic woes, India seems to be a clear winner from the war in Ukraine as a major importer of cheap Russian oil. With the Moon’s South Pole landing, India has cemented its position as one of the world’s leading economies with actual G-Force.

What have we been watching?  

A shorter week in the UK with the Bank Holiday so one less day of financial news! Following the previous week’s gathering of central bankers at Jackson Hole and the Federal Reserve (Fed) view that signalled US interest rates will be higher for longer, markets are now focusing upon the Fed’s ability to deliver a ‘soft economic landing’ in the US. Meanwhile, there were continued weak manufacturing activity indicator readings for many countries although China announced further measures to support its struggling property sector.   

Tensions between the US and China over Taiwan remained in focus after China sent aircraft and vessels towards the island after the US approved a $500m arms sale to Taiwan. However, US Commerce Secretary Gina Raimondo met with her Chinese counterpart in Beijing to re-open lines of communications between the two super-powers.

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In the UK, the drop in house prices accelerated in August to the fastest pace since July 2009 with lender Nationwide reporting a 5.3% decline. The UK manufacturing PMI activity indicator for August dropped to 43.0.

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In Europe, German inflation is proving stickier than expected supporting the case for another interest rate hike by the European Central Bank (ECB) at its next meeting in September. German inflation in July was a bit higher than expected at 6.4%. Likewise, French inflation was also higher than forecast driven by energy prices. Meanwhile, European manufacturing PMI activity indicators continued to contract during August with Germany falling to 39.1, Italy to 45.7 and France at 46.0.

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In the US, monthly jobs numbers indicated a gradual easing in the labour market as US unemployment ticked up.

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China’s Caixin manufacturing PMI which tracks the performance of private businesses climbed to the highest level in six-months with firms citing firmer market demand. China’s largest banks are reported to be preparing to cut interest rates on existing mortgages to support consumer spending and property sector sentiment.

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Brent oil re-bounded to $88. Russia agreed with its OPEC+ partners to reduce oil exports by 300,000 barrels a day during September, down from the 500,000-reduction agreed for August.

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Finally, we have covered ‘shrinkflation’ in previous editions of Alpha Bites. However, we noticed that Burger King is being sued because the size of their Whopper is too small – Caveat emptor!

 

Read Last Week’s Alpha Bites – Dire Straits

 

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.