U.S. manufacturing. For the first time since 2016, the Institute for Supply Management purchasing managers’ index fell below 50 points, indicating that factory output is contracting. The index stood at 49.1 in August, down from 51.2 in July and the lowest reading in three years. ISM’s new orders index, which is often seen as an indicator of a downturn, fell even lower to 47.2. Factories also reported in August the largest decline in export orders since October 2008. The U.S. stock market responded to the news as would be expected – with declining stock prices and bond yields. This is just one more sign that the U.S. economy is nearing the end of its expansionary period.
Japanese banks. Japan’s regional banks are struggling to stay profitable as interest rates remain extremely low and the number of borrowers in less-populated areas shrinks. Yields have been falling worldwide – $17 trillion of investment-grade debt globally is estimated to have negative yields. The solution for many Japanese banks has been to seek investment in riskier credit markets, which may be potentially more profitable but are also more likely to default. Last month, several regional lenders purchased the first negative-yielding note issued by a Japanese agency. Others are looking to purchase more overseas debt, which has slightly higher yields. Ratings agency Moody’s has noted the declining profit margins of Japanese banks, saying that this was one of the factors that led it to put Japanese lenders on review for a downgrade last month.
Venezuelan military exercises. Venezuelan President Nicolas Maduro has announced that the Venezuelan army will hold military exercises along the border with Colombia and warned troops of a potential Colombian invasion. The exercises come just days before annual drills are scheduled to take place on Sept. 10-29. The government periodically engages in these types of exercises to assert its control and demonstrate that the Maduro government is still in charge. Despite past antagonism, Colombia wouldn’t have anything to gain from attacking Venezuela. Last week, however, dissident members of the Revolutionary Armed Forces of Colombia, or FARC, announced that they would take up arms again in Colombia. FARC and another Colombian rebel group called the National Liberation Army have a long-standing relationship with the Venezuelan government, and some of their current or former members have used Venezuela as a safe haven.
Johnson loses control. British Prime Minister Boris Johnson lost a key vote in Parliament yesterday, as lawmakers supported an effort to block a no-deal Brexit. Lawmakers voted to take control of Parliament, enabling them to hold a vote on a bill that would require Johnson to seek another extension to the U.K.’s pending withdrawal from the European Union if he cannot get a deal signed by Oct. 31. Johnson responded by threatening snap elections, which the opposition said it wouldn’t vote for unless a no-deal exit was ruled out.
- A group of senators wrote a letter to acting White House chief of staff Mick Mulvaney asking that President Donald Trump not delay sending $250 million in military aid to Ukraine. The funds, which are already appropriated in the national budget, are reportedly being delayed by the administration.
- A new civil disobedience campaign has been launched in Catalonia, ahead of Catalonia Day Sept. 11. The campaign will call for the revival of Catalonia’s independence movement.
- Hong Kong Chief Executive Carrie Lam said she would put forth a motion to formally withdraw the extradition bill that has been a major focus of the ongoing protests in Hong Kong. Protest leaders rejected the potential concession as insufficient.
- Syrian Democratic Forces have begun removing fortifications near the Syria-Turkey border, as part of a U.S.-Turkey deal to establish a 19-25-mile safe zone in northeast Syria.
- The Pentagon authorized the diversion of $3.6 billion in military construction funds to help fund 11 border wall projects along the U.S. southern border.
- The U.S. Treasury Department imposed new sanctions on three Iranian space agencies.
- Christine Lagarde, who has been nominated to head the European Central Bank, is asking that European governments implement fiscal stimulus and coordinate their policies more closely with the ECB.
- France has offered $15 billion in credit to Iran if complies with the 2015 nuclear deal.