EconVue Weekly Spotlight July 9, 2016

posted by Lyric Hughes Hale on July 9, 2016 - 12:00am

The world appears to careen from one source of instability to another.  The recent US employment report was better than expected, and in fact the US continues to do well and will benefit as a safe haven. However, political developments continue to outdistance economic news. From Dallas to Tokyo to the South China Sea, here is what we can expect over the coming week.
Stories in our Spotlight This Week  
1.  Countering China's Third Sea Force: Unmask Maritime Militia Before They're Used Again
 Andrew S. Erickson, Conor M. Kennedy 7/6/16 National Interest 
Another source of instability: July 12th when the ruling on the South China Sea from the Hague is expected (initiated by the Philippines). The verdict is likely to go against China, and this article discussed possible reaction by China's shadow navy, the Maritime Militia. Recent US/ROK military games in the area, and sanctions against the North Korean regime, are widely seen as preemptive against any action China may take.  Here is an excellent backgrounder on THADD from last year:
2.  South Korea Needs THAAD Missile Defense
Bruce Klingner 6/12/15 Heritage. org
This is not just about the South China Sea, the issue is international law.
The ruling of the Hague Tribunal has the potential to polarize opinions against China and isolate the country from the norms of global governance.  The European Union is especially alarmed at the prospect of China’s defiance of international law, and can be expected to issue a statement on or before Tuesday’s ruling.
3.  In aging Japan, the 18-year-old voter gets welcomed to the voting booth
Gavin Blair 7/8/16 CSmonitor
This Sunday marks the election of the House of Councillors in Japan, and the first time 18-year old’s are able to vote.  Why might young Japanese voters go against Abe?  The new three arrows:  the failure of Abenomics, the possibility that an LDP majority in the House of Concillors could shoehorn a new interpretation of Article 9 and allow offensive military development, and the postponement of the consumption tax which places upon them an enormous burden of debt.
4.  Reinforcing Detterence on NATO's Eastern Flank
David A. Shlapak, Michael Johnson July 2016 Rand
The NATO summit in Warsaw has just ended, at a sensitive time when the European economic union is under attack. A Rand study finds that "As presently postured, NATO cannot successfully defend the territory of its most exposed members”. It appears that the members accepted the recommendations proposed in this article, and have decided to deploy seven brigades in Poland and the Baltic States. Putin will doubtless react.
5.  Brexit Bet Makes Kazakhstan Better Than Soros
Nariman Gizitdinov 678/16 Bloomberg
Despite the usual drama that takes place in any emerging market, Kazakstan has some incredibly intelligent economic policymakers.  They could become a fintech hub in the region.
6.  The Brexit Surprise and Emerging Markets
Barry Eichengreen, Poonam Gupta, Anderson Ospino 7/4/16 VoxEU
7.   Hungary Calls "Quota Referendum" for October 2nd
Robert Hackwill 7/6/16 EuroNews
Another date to watch in the countdown to the new face of the European Union. If Hungary votes to ignore EU rules on immigration, they are effectively voting to leave.
8.  What if Japan Becomes Treasury's First Currency "Manipulator" in 22 Years? 
 Ben Steil, Emma Smith 7/7/16 CFR 
Let the currency wars begin.
9.  This Tweet Perfectly Captures How Many People Feel After the Dallas Shooting
German Lopez 7/8/16 Vox
10.  Book Review: "The Pivot: The Future of American Statecraft in Asia", By Kurt Campbell
Hugh White 7/4/16 The Interpreter
Hugh White says that the US has not diagnosed the problem the pivot to Asia was designed to solve. The author disagrees:
 "The Pivot": A Reply To Hugh White
 Kurt Campbell 7/5/16 The Interpreter
EconVue Research and Insights

Why Culture Matters: On Governance Scandals and Corporate Malfeasance in Japan   Nicholas Benes

Corporate compliance and a codified form of corporate ethics is just getting off the ground in Japan. Given their weight in global equity markets, investors need to understand the state of play in Japanese companies today. EconVue expert Nicholas Benes shares his views from Tokyo:  

In contrast to most other nations, where the cause of malfeasance, securities fraud and the like is often personal greed of some sort. In Japan, the causes usually lie in a misplaced concept held by managers that avoiding public embarrassment is best for the company.    
They may have some catching up to do in the sense of compliance practices, ethics programs, and internal forensics, but when they set out to study something, Japanese managers usually do a pretty good job of it.

China's Economy and Policy: Trends and Outlook in Early 2016    Nikolai Tagarov 
China will tighten capital controls, and will need to work with institutions like EBRD, EIB and IFC to achieve its New Silk Road goals but MFIs must remind China of the need to adhere to free market and CSR principles.
Data Round-Up: Jobs Back on Track, Trend Looks Sustainable at +150K  Michael Lewis
The pound remains weak, and the dollar has been bolstered by the ‘flight to safety’ amid uncertainty. As the UK-EU relationship is clarified in coming months, currencies will revert to pre-Brexit norms.