Morning Briefing | BRICS vs. the G7
Mastercard cuts ties with Binance – Mastercard (MA) announced that it will end its card partnership with the world's largest crypto exchange, Binance. The move will affect all four of Mastercard's co-branded card programs, in Argentina, Brazil, Colombia, and Bahrain, starting September 22. This comes amid the ongoing legal issues facing Binance, including lawsuits by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission alleging securities and trading violations. While Mastercard said this won't impact any other crypto card programs, the decision does raise questions about its commitment to incorporating cryptos into its business.
Powell prepares for spotlight speech – The 46th annual Jackson Hole Economic Symposium continues today with multiple speakers from the Federal Reserve and other global central banks. The focal point will be Fed Chair Jerome Powell's much-awaited speech, which starts at 10:05 a.m. Eastern time. Market participants will be looking for any insights into the interest-rate landscape. European Central Bank President Christine Lagarde is also scheduled to deliver her first major public remarks since raising borrowing costs in July. She's scheduled to speak at 3 p.m. Eastern time. Investors will be closely monitoring both speeches for new insight into the path forward for global central banks.
Jobless claims slide for second week in a row – New unemployment claims in the U.S. decreased again this week, down by 10,000 to a seasonally adjusted 230,000. The number of Americans receiving benefits after an initial week of aid (a measure of ongoing unemployment) also decreased, which shows that some may only be unemployed for a short period of time. Despite the Federal Reserve's continued rate hikes, the labor market has been resilient. Strong labor market conditions, coupled with cooling inflation, are fueling optimism that the economy may avoid a recession.
The U.S. manufacturing sector remains weak – Recent manufacturing data suggests U.S. companies may be pulling back on spending. Orders for business equipment, excluding aircraft and military hardware, increased slightly in July after reporting a 0.4% decline in June. However, orders for all durable goods (equipment meant to last three-plus years) declined the most since 2020, primarily due to fewer bookings for commercial aircraft. Bookings for computers and related products also fell. High borrowing costs, strict credit terms, and ongoing economic uncertainty are weighing on companies' desire to make longer-term capital investments. Both regional and national surveys recently indicated a weak manufacturing sector, highlighting deterioration in new orders and expectations for ongoing contraction.
Fed officials are divided on rate-hike path – Federal Reserve officials Susan Collins and Patrick Harker disagree on the potential path of interest-rate hikes ahead of the Jackson Hole Symposium. Boston Fed President Susan Collins said the central bank may need additional rate hikes. Though she didn't signal the exact peak for interest rates, she said we could be close to a point where the Fed can hold rates steady. On the other hand, Philadelphia Fed President Patrick Harker suggested the Fed has "probably done enough" with policy tightening and needs time to assess its impact on the economy. Fed officials' differing policy stances have only increased the uncertainty around the upcoming rate decision.
U.K. consumer confidence climbs higher – U.K. consumer confidence rebounded in August after a slight dip in July. Market research company GfK said its consumer confidence index has gradually improved throughout the year, a notable shift since hitting its lowest point last September. This is largely due to the continued easing of inflation and the sustained strength of wage growth. However, confidence levels remain in negative territory. And the recent drop in retail sales in July is expected to continue. It's clear that consumers are more cautious when it comes to their spending.
This week has been a nailbiter for investors and economists alike, thanks to the annual Jackson Hole Economic Symposium.
The headlines are abuzz with speculation about what Federal Reserve Chairman Jerome Powell will say at the meeting later today.
But instead of getting swept up into that guessing game this morning, let's look at another annual meeting that already took place this week. And it's one that could have a major impact on the future of the global economy... along with the world's reserve currency.
The three-day-long BRICS Summit ended yesterday. "BRICS" comes from Brazil, Russia, India, China, and South Africa that make up this economic bloc.
The primary goal of BRICS was to foster collaboration between major emerging economies to rival the economic dominance of G7-member nations. That includes the U.S., the U.K., Germany, France, Japan, Canada, and Italy.
But now, this set of nations has even bigger ambitions... It wants to directly challenge the G7's political and economic influence with more members and an alternative to the U.S. dollar.
Yesterday, BRICS grew its ranks... It opened its membership up to six more nations to join the group, starting on January 1, 2024.
Among those invited were Saudi Arabia, Iran, Egypt, Argentina, Ethiopia, and the United Arab Emirates.
Take a look…
The addition of these new nations – namely Saudi Arabia, the No. 1 oil exporter in the world – means BRICS member nations will control more than 80% of global oil production.
Also, for those already worried about BRICS posing a threat to the greenback, this change only adds more fuel to the fire. (Our editor-at-large Daniela Cambone sat down with bestselling author Robert Kiyosaki last week to talk about this topic. Check out the video below.)
The BRICS's Plan to Destroy the Dollar
The U.S. dollar's longstanding status as the world's reserve currency has been threatened this year as prominent countries around the world (notably Brazil, Russia, India, China, and South Africa, known as "BRICS") have avoided relying on the dollar for global trade. Robert Kiyosaki, the bestselling author of Rich Dad Poor Dad, says a return to a gold standard is inevitable as long as these foreign adversaries remain unified...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and X (formerly known as Twitter).
The expansion also takes place at a time when Russia and China have distanced themselves even further from the West as tensions continue to mount surrounding Russia's invasion of Ukraine, and China's threat to invade Taiwan.
According to Ziad Daoud, chief emerging market economist at Bloomberg, this expansion signals that the BRICS agenda is expanding beyond purely economic motivations.
And of course, economic dominance is a prerequisite for becoming a powerful leader on the global stage. This is exactly why China has pushed so hard to expand its influence into the Middle East and Africa.
In fact, BRICS has just surpassed the G7 as having the largest share of the world's gross domestic product ("GDP") output. And that lead is only projected to grow further.
Take a look at the image below from Visual Capitalist that shows what the global GDP breakdown could look like in 2050...
As you can see, analysts expect several non-developed markets in Asia – led by BRICS members China and India – to surpass the world's superpowers sometime in the mid-2040s.
But if we want to scale this back to just the G7 versus BRICS, take a look at the following chart. It includes projections for the current version of BRICS and a "BRICS+" version with the six new potential members...
By 2050, a bigger BRICS could account for almost three times the amount of G7 GDP output.
Look, BRICS has been around for a while. And to me, the fall of the dollar seems to be a perennial talking point with little to back it up. Additionally, Brazil and India currently hold closer ties to the West than its fellow member nations – posing challenges for this emerging alliance.
But regardless of whether this move will be effective in replacing the dollar and the West as the primary global economic "trading house," the idea is clear... China is pushing for a complete reshuffling of the world economic order. As for the U.S., it needs to ensure that its economy is secure so it can continue to be a leader on the world stage.
Remember, if you wish to be featured in next week's "mailbag" issue, you have until noon Eastern time today to shoot us an e-mail.
As always, please submit all thoughts, questions, and commentary to new@stansberryresearch.com.
Until Monday,
Kevin Sanford, MBA and the NewsWire team
August 25, 2023
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