Recommended Weekend Reading

May 26 - 28, 2023

Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and have a great weekend.   And let us know if you or someone you know wants to be added to our distribution list.

“More than Words: Twitter Chatter and Financial Markets”   US Federal Reserve Board Paper

Abstract: We build a new measure of credit and financial market sentiment using Natural Language Processing on Twitter data. We find that the Twitter Financial Sentiment Index (TFSI) correlates highly with corporate bond spreads and other price- and survey-based measures of financial conditions. We document that overnight Twitter financial sentiment helps predict next-day stock market returns. Most notably, we show that the index contains information that helps forecast changes in the U.S. monetary policy stance: a deterioration in Twitter financial sentiment the day ahead of an FOMC statement release predicts the size of restrictive monetary policy shocks. Finally, we document that sentiment worsens in response to an unexpected tightening of monetary policy.

“Industrial policy for electric vehicle supply chains and the US-EU fight over the Inflation Reduction Act”  Peterson Institute for International Economics

Abstract: The Inflation Reduction Act (IRA) of 2022 provoked a transatlantic trade
spat. After the law was passed, the Biden administration addressed some of
the concerns raised by the European Union by writing controversial rules to implement the legislation. These regulations are expected to have complex effects that, in some instances, may offset the intended impact of other provisions in the original legislation. This paper examines how the law, its implementing regulations, policy decisions on leasing, as well as potential critical minerals agreements all, have the potential to affect the electric vehicle (EV) supply chain. The EV case study showcases the political-economic complications involved in US and EU's attempts to cooperate over clean energy transition policy to address the global externality of carbon dioxide emissions.

“Why US Tech Giants Need Africa”  Nate Allen & Nanjira Sambuli/Project Syndicate

Last year, Google’s Equiano undersea cable, which began conveying terabytes of data per second and stretches from Western Europe to South Africa and has 20 times the capacity of the previous cables that served the continent.  According to Google projections, the new cable has the potential to transform Africa’s economy by creating millions of jobs, reducing data costs by nearly 20%, and enabling a fivefold increase in internet speeds. Yet, a little over a third of Africa’s 1.4 billion people use the Internet.  US tech companies have to step up their focus and investment on the continent – and that means they must show they take local interest seriously.

“Empire’s Twilight? Russia Loses Support in Its Own Backyard”   Gallup

Russia’s image took a hit worldwide after it invaded Ukraine in 2022, according to a recent Gallup report, including in post-Soviet states that Russia considers part of its sphere of influence. This is quite a reversal for Moscow which sought to regain preeminence over countries that formed the Soviet Union. For President Vladimir Putin and other Russian nationalists, the idea of a “privileged” sphere of influence among post-Soviet states is crucial to the perception of Russia as a great power. In the wake of Russia’s invasion of Ukraine, its image has suffered significantly across many, but not all, post-Soviet states. Here are five key takeaways from Gallup’s 2022 data on the approval of Russia’s leadership in those countries. 

  “Decoupling is Already Happening – Under the Sea”  Foreign Policy

U.S.-China rivalry has led to the rerouting of crucial subsea internet cables, which could have major geopolitical consequences.

Charts of the Week 

The US Department of Commerce’s Entity List has Grown.  A Lot.

The list of companies on the US Commerce Department’s Entity List – a blacklist – of people and entities who US companies cannot export technology without first securing a license has grown massively in the last two years.  While Russia has been disproportionately hit by the Entity List with almost 900 entities, China and a number of countries have been hit harder, too.  China has almost 700 entities on the list now. But that does not mean a complete ban on exports to Russia or China.  In Q1 2023, the Us exported goods to Russia worth almost $2 billion (which is down 77 percent year over year).  And trade with China came in at almost $140 billion (down 20 percent year over year).  Other countries of note who show up on the Entity List – some obvious, some surprising – include Venezuela, Switzerland, Germany, Taiwan, Japan, Myanmar, Singapore, Canada, Iran, Lebanon, Netherlands, Pakistan, South Korea, Turkey, United Arab Emirates, United Kingdom, and Israel.

China’s Baffling Young Unemployment Problem

The Financial Times recently published a fascinating report on the unexplained and unexpected spike in youth unemployment in China.  For Chinese between the age of 16 and 24, the unemployment rate hit 20.4 percent in April and seems to be climbing – yet, the overall jobless rate fell to 56.2 percent in the same month. This is twice the US level but somewhat comparable with some European countries such as Italy and Spain.  Citing a recent Goldman Sachs study, the Times points out this is an increasingly politically sensitive issue for Beijing. 

But why is it happening?  The Goldman report suggests both cyclical and structural factors, including the impact of COVID on service sectors such as hotels and catering which tend to hire younger workers.  But the report also suggests that there may be a “misalignment of academic disciplines with business requirements.  For example, the number of graduates from vocational schools who majored in education or sports rose by more than 20 percent in 2021 vs. 2018, but the hiring demand in the education industry weakened meaningfully during the same period.”