BIZCOMMENT
Tuesday July 30, 2019 B7ECB under pressure to lower interest rates
California’s car-emissions pact with four automakers cuts through DC smog
A pact on pollution between California
and four of the world’s top automakers
has cut through the smog from Wash-
ington. US’ largest state by population
and economic output on Thursday un-
veiled a deal to reduce vehicle emissions
with BMW, Ford Motor, Honda Motor
and Volkswagen. It effectively sidelines
an intransigent White House, aligns
more closely with overseas standards
and offers some handy incentives to
boot.
Transportation accounts for almost a
third of all greenhouse-gas emissions in
the US, according to the Environmental
Protection Agency. Internal combus-
tion engines have been getting more
efficient, but in 2012 former president
Barack Obama decided to speed up the
process by demanding each automaker
boost its fleet’s average mileage to al-
most 47 miles per gallon by 2025. His
successor, President Donald Trump,
wants to freeze that at the 2020 target
of 37 miles per gallon. He also wants to
remove the Golden State’s ability to set
its own enforceable targets, arguing only
the federal government should have
such power.
Thursday’s deal provides a neat by-
pass. It allows automakers to voluntarily
accept California’s emissions policies.
The pact’s emissions standards apply to
the companies’ nationwide fleets, and
will also encompass the 13 other states
that had already adopted California’s
policies. In return, the four manufactur-
ers get an extra year, until 2026, to meetSacramento’s tailpipe-gas targets com-
pared with the Obama-era ruling.
Those are more in line with what a
number of European countries, as well
as China, are pushing for. That ought
to reduce compliance and development
costs, boosting both progress on low-
carbon propulsion systems as well as
profitability.
The signatories also will receive in-
centives ranging from emissions credits
to faster approvals of pollution-reducing
technology. That might put only a small
dent in the almost $110 billon the four
have committed to developing electric
vehicles, according to Reuters estimates,
but every little bit helps.
They may also be joined by more of
their peers. Just last month 17 automak-ers, including California’s gang of four,
implored Trump in a letter to find a
compromise on emissions that “all par-
ties could support – including Califor-
nia.” The more who sign up – not least
General Motors and Toyota Motor, the
two largest sellers of new cars in the
country – the better the results for the
environment and the auto industry’s
bottom line.The author is Antony Currie, a Reuters
Breakingviews columnist. The article was
first published on Reuters Breakingviews.
[email protected]Page Editor:
[email protected]By Jameel Ahmad
T
he most important
economic release for
many global investors
last week was the European
Central Bank’s (ECB) interest
rate decision. And the down-
beat narrative provided by ECB
policymakers, along with the
terrible data out of the euro-
zone in recent weeks inspired
investor expectations that the
ECB would begin yet another
round of monetary easing.
While the ECB refrained
from changing policy in July
and even went as far as to
indicate it saw a low risk of a
recession for the eurozone, the
economic data over the past
months tell a far different sto-
ry. Draghi himself even warned
that the economic outlook was
getting “worse and worse.”
Considering the importance
Europe holds to the global
economy, where three of its
nations (Germany, France
and Italy) are in the world’s 10
largest economies, more atten-
tion to the state of European
economic affairs is required.
Investor attention is focused
on challenges away from mac-
ro data – the unpredictability of
the Donald Trump administra-
tion, how unprepared the UK
is for Brexit with less than 100
days to go, global trade rela-
tions, geopolitics and the risk
of another period of isolation
for Iran. With all this com-
ing together at a time where
senior political influencers are
making regular comments
on central bank policies, not
enough attention is paid to the
dismal run of economic data
that Europe is displaying.
Eurozone manufacturing
activity hit its lowest level in
more than six years at 46.4
in July. Its largest economy,
Germany, is displaying the type
of economic momentum that
one can
attribute
to a fallen
giant. It
is feared
that the Ger-
man economy
contracted in
the second quarter,
while its Manufactur-
ing purchasing managers’
index (PMI) recently slumped
to its lowest reading in seven
years at 43.1. Germany’s closely
watched IFO gauge of business
confidence recently registered
its lowest level since 2009 at
92.2.
To be fair to Germany, along
with its EU peers, its economic
headaches can be largely at-
tributed to external factors on
Europe’s productivity. Ongoing
trade aggression led by the US
has led to the slowest growth
in global trade since 2012
on an annualized level at 0.5
percent during the first quarter
in 2019.
The lingering threat of the
US administration imposing
tariffs on European goods
remains. Beyond automobiles,
the aviation sector is also being
dragged into rising US-EU ten-
sions. The US Trade Represen-
tative’s office published a list of
some $25 billion worth of EU
exports that could face tariffsas compensation for the ongo-
ing Boeing-Airbus dispute.
Brexit uncertainties have
also added to the downcast
sentiment over the EU, where-
by a messy divorce is set to put
to risk the $800 billion worth
of UK-EU trade that trans-
pired last year. In the event of
a no-deal Brexit, a new trade
arrangement between the UK
and the EU could take years
to formulate, which would
severely dampen EU exports to
the UK, valued at $431 billion
in 2018, in the interim.
Look no further than the
euro’s performance so far this
year to assess market pessi-
mism: the euro has lost nearly
3 percent against the US dollar.
During that same period, the
bloc’s currency has weakened
against all of its G10 peers, bar
the Swedish Krona. The sametrend plays out when compar-
ing the euro against Asian cur-
rencies, with the South Korean
won the sole exception to the
year-to-date gains enjoyed by
its regional peers against the
euro.
The inflated stock market
globally tells us all we need
to know – investors adore in-
creased access to money. And
they are prepared to invest in
the stock market once again in
the hope of easing from world
central banks, a very similar
trend to what has been seen
throughout the decade.
This is positive news for the
Chinese yuan, as well as global
emerging markets. A sign
from the Federal Reserve that
interest rates in the US can
be reduced by at least 50 basis
points over the second half of
2019 will prove encouragingfor investors to transfer capital
back into the developing
world.
It might disappoint inves-
tors that the ECB did not
pull the trigger in July, but at
the same time it has firmly
dangled the carrot of a future
move. The Fed by all accounts
has already warned the
market that it will pull the
trigger at the upcoming July
Federal Open Market Com-
mittee (FOMC) meeting.
The two most influential
central banks in the world
will also encourage more
emerging market central
banks to follow suit. South
Korea, Turkey, India, Indo-
nesia, Malaysia, Nigeria and
South Africa are just some of
the central banks to have eased
policies this year.
The People’s Bank of China
(PBC), China’s central bank,
can do the same, and likely
will consider the potential of
lowering interest rates in the
second quarter once confir-
mation comes through next
week that the Fed will cut
US interest rates. The Chi-
nese economy is performing
reasonably well and looks to
be on track to achieving the
government target for growth
this year, in light of tough eco-
nomic conditions stemming
from prolonged trade tensions
pursued by the US.
However, there are several
signs of coordinated economic
weakness across the globe this
year, and if the trend is clear
that central banks are cutting
interest rates to combat global
weakness, there isn’t reason
for the PBC to not at least con-
sider taking similar actions.The author is global head of
Currency Strategy and Market
Research at London-based broker
FXTM. bizopinion@globaltimes.
com.cnIllustration: Luo Xuan/GT