To begin this week’s newsletter, we examine the factors that triggered the global equity selloff that occurred earlier this week. Then, we touch on the recent election in Venezuela, which has been marred by accusations of widespread fraud. We then move on to a discussion of China’s economic difficulties, including their global repercussions. We end this week’s newsletter by looking at global protests in the Global South, highlighting the cases of Nigeria and Bangladesh.

Weak Economic Data and Rising Yen Sparked Global Selloff

What drove the global stock sell-off?

Adam Samson, Financial Times

$6.4 Trillion Stock Wipeout Has Traders Fearing ‘Great Unwind’ Is Just Starting

Ruth Carson, Lu Wang, Vildana Hajric, and Bailey Lipschultz, Bloomberg

Why Japanese markets have plummeted

The Economist

Global markets experienced significant turmoil on August 5th as concerns about the US economy’s trajectory led traders to rapidly unwind their positions, which had dominated the year. The epicenter of this financial tumult was Japan, where the Topix index plunged over 12% in its worst sell-off since the 1987 “Black Monday” crash on the back of a Japanese decision to increase interest rates that in turn caused the yen to spike. The ripple effects of this sell-off extended to the US and European markets, with Wall Street’s S&P 500 falling more than 2%. The sudden market decline was triggered by recent economic data that undermined the belief that global policymakers, particularly the US Federal Reserve, could control inflation without substantial collateral damage.

Specifically, the August 2nd US jobs report revealed a sharper-than-expected slowdown in hiring and raised fears that the US economy is increasingly strained by high borrowing costs. Corporate executives also signaled that consumers are starting to cut back on spending. These developments have severely tested the expected “Goldilocks” scenario that anticipated a balanced economic outcome from U.S. policies, driving investors to reassess their positions. As a result, fears of a US recession have intensified, with Goldman Sachs now estimating a one-in-four chance of recession within the next year, up from 15%. This has contributed to a broader sense of economic concern, especially in the Eurozone which has been hard hit by geopolitical tensions, weaker global growth, and fragile consumer confidence while data from China suggests lessening activity in its factory sector.

Venezuela’s Election Crisis

Maduro Opposition Shares ‘Overwhelming Evidence’ of Venezuela Election Fraud

Bloomberg

What’s Ahead for Venezuela’s Crisis?

World Politics Review

Nicolás Maduro Goes “Full Ortega”

Brian Winter, Americas Quarterly

Thousands of Venezuelans have taken to the streets in protest after authorities declared President Nicolás Maduro the winner of Sunday’s election without publishing detailed results. The country’s electoral agency (CNE), controlled by Maduro loyalists, announced that the incumbent was reelected with 51.2% of the vote, later revising this to 51.95%. In return, the main opposition party, the Unitary Platform, released detailed results from more than 24,000 of the approximately 30,000 voting stations, claiming their candidate, Edmundo González, had secured nearly 70% of the vote (equating to roughly 7.2 million votes for González and 3.2 million for Maduro). This data was gathered through a network of witnesses and citizen observers, who took images of vote tallies and monitored the counting process, showing González winning by a significant margin.

The opposition’s evidence has garnered international attention, with US Secretary of State Antony Blinken acknowledging the overwhelming evidence and recognizing González as the rightful winner. Despite this, Maduro has doubled down on his claim to victory, preparing to submit vote tabulations to Venezuela’s top court, also under his control, for an audit. Tension and frustration among Venezuelans are rising as the Maduro regime has begun cracking down on dissent, with the regime’s security forces already imprisoning thousands of protestors and threatening to detain key opposition figures. This escalating situation leaves Venezuela in a state of uncertainty and turmoil, with the potential for another wave of immigration from Venezuela into the Americas and increased international isolation of the Maduro regime. 

China’s Demand-side Issue Threatens Sustainable Growth

Why Is It So Hard for China to Boost Domestic Demand?

Michael Pettis, Carnegie Endowment

What the world gets wrong about China’s overcapacity

The Economist

Why is Xi Jinping building secret commodity stockpiles?

The Economist

The Chinese Communist Party’s Third Plenum communiqué released on July 18 was notably vague on demand-side measures, as expected, focusing more on supply-side reforms. This comes despite a strong consensus among economists that weak consumer demand is a significant barrier to sustainable growth in China. Globally, consumption accounts for around 75% of GDP, but in China, it lags at 53-54%, with a heavy reliance on investment and trade surplus to drive growth. This structural imbalance is deeply entrenched, making it challenging for Beijing to pivot towards boosting consumer demand.

The global impact of China’s economic policies is multifaceted. China’s emphasis on investment has led to overcapacity in several industries, notably manufacturing and infrastructure. This overcapacity results in an increased global supply of Chinese goods, potentially disrupting markets in other countries. The European Union, for example, has expressed concern over the influx of Chinese electric vehicles and steel, which threaten local industries and jobs. This dynamic, paired with China’s extensive resource stockpiling amidst geopolitical tensions, indicates a strategic preparation for potential disruptions in supply chains. Such stockpiling could inflate commodity prices globally, affecting everything from raw materials to consumer goods.

Protests in Global South

Nigerians take to the streets for second day of nationwide protests

Aanu Adeoye, Financial Times

She Thought Her Grip Was Unbreakable. Bangladeshis Would Prove Otherwise.

Mujib Mashal, New York Times

Nigeria is facing significant unrest as demonstrators continue to take to the streets in its largest cities, protesting against the severe cost of living crisis and poor governance. In response to rising food and fuel prices—which have tripled under the current administration—and inflation rates hitting three-decade highs, protests erupted across the country on August 1st, from the commercial hub Lagos to the capital Abuja, and several northern states. The government’s efforts to curb the unrest have included curfews, the deployment of heavily armed police and military, and the use of tear gas on demonstrators. The situation has turned deadly in several northern states, with law enforcement forces reportedly firing on protesters, resulting in over a dozen fatalities, according to human rights groups. Despite attempts to prevent the protests through threats, legal actions, and appeals from traditional and religious leaders, the demonstrations persisted, inspired partly by similar movements in Kenya. The government has also attempted to placate protesters by announcing new job vacancies and doubling the national minimum wage, but the protests are unlikely to end until at least August 11th, based on the 10-day protest envisioned by the organizers.

Meanwhile, in Bangladesh, protests have resulted in the resignation of Prime Minister Sheikh Hasina—who has since fled to India— on August 5th just months after she secured her fourth consecutive five-year term. The massive protest movement initially began with students demonstrating against a quota system that gave preferential treatment in government jobs, but it has since expanded to larger swathes of the population disillusioned with Hasina’s increasingly repressive government and Bangladesh’s economic challenges. Under Hasina, Bangladesh’s economic situation has been marked by an over-dependence on the garment industry, deepening inequality, increased food prices, and dwindling foreign reserves. Hasina tried to quell the protest through repressive measures like curfews, cutting off the internet, the arrests of 10,000 people, and accusations of criminal activity levied against tens of thousands more Bangladeshis, on top of the deployment of security forces that resulted in the deaths of over 300 people since the protests began last month. Bangladesh, a country of 170 million people, now faces uncertainty and a potential resurgence of Islamist militancy in the political vacuum left by her departure.