Macro Briefing: 8 July 2022

* Former Japan Prime Minister Abe assassinated during during speech
* Johnson steps down at a vulnerable moment for the UK economy
* Putin warns Russia’s war on Ukraine has only just started
* US trade deficit narrowed for a second month in May
* Mortgage rates drop for a second week, posting largest decline since 2008
* US jobless claims remain low and stable, implying strong labor market:

Default risk rising for emerging markets debt. Bloomberg reports: “A quarter of the nations tracked in the Bloomberg EM USD Aggregate Sovereign Index are trading in distress, generally defined as yields more than 10 percentage points above those on similar maturity Treasuries. The gauge has tumbled almost 20% this year, already exceeding the full-year loss it notched during the global financial crisis in 2008. Some of that, of course stems from big losses in underlying rate markets, but credit deterioration has been a major driver for the most distressed nations.”

German economy may be on brink of a reversal of fortune. “This may really be the beginning of a weaker period for Germany,” says Achim Truger, a leading economic adviser to the government in Berlin. “If ever somebody viewed Germany as a role model, maybe it’s time to have a realistic view about strengths and weakness. Nobody’s perfect.”

Signs of division emerging for G-20 nations for confronting Russia’s war on Ukraine. AP reports: “Deeply divided top diplomats from the world’s richest and largest developing nations struggled to find common ground Friday over Russia’s war in Ukraine and how to deal with its global impacts. At talks that were were knocked off balance by two unrelated and unexpected political developments far from the Indonesian resort of Bali where they were meeting, Group of 20 foreign ministers heard an emotional plea for unity and an end to the war from their Indonesian host. Yet, consensus appeared to remain elusive amid deepening East-West splits driven by China and Russia on one side and the United States and Europe on the other.”