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Hong Kong airport shutdown Cancels all flights

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Hong Kong airport shutdown: The decision to cancel all departures and inbound flights not already in the air was made after thousands of pro-democracy protestors gathered at the airport, the region’s third busiest after Beijing and Tokyo.

Protests have been rocking Hong Kong for months, and the crisis is already having a noticeable effect on the city’s economy. Some demonstrations have ended in violent clashes with police.

Hong Kong airport

Crowds appeared to be dissipating at the airport by Monday evening in Hong Kong. But the canceled flights are a stark reminder of the risk to global businesses and the city’s tourism sector.

More than 74 million passengers traveled to and from the airport last year. It handles 1,100 passenger and cargo flights each day, and serves about 200 destinations around the world.

The airport contributes 5% to Hong Kong’s GDP, directly and indirectly, said Frank Chan, Hong Kong’s transport secretary, in May.

“This is a disaster for Hong Kong that will cost tens of millions of dollars,” said Geoffrey Thomas, editor in chief and managing director of AirlineRatings.com, a website that monitors airlines.

The direct impact of Monday’s suspension isn’t the only problem, he said.

“Travelers for months to come will cancel and rebook with other airlines to avoid Hong Kong as a hub,” Thomas added.

Hong Kong is home to seven Fortune Global 500 companies, including Lenovo (LNVGF) and CK Hutchison (CKHUY), and it operates as a regional base for big corporations and major banks that prize its semi-autonomous legal system and close ties to mainland China.

Companies have already reported “serious consequences from the disruption,” including lost revenue, disrupted supply chains and shelved investments, the American Chamber of Commerce in Hong Kong said last month.

Fewer visitors, less business

Hong Kong’s status as a hub for business travel was already under threat before the protests began.

More business travelers are taking direct flights to mainland China instead of stopping over in Hong Kong, according to a February report compiled by the Hong Kong Tourism Board.

Hong Kong's economy is slumping. Mass protests could make things much worseHong Kong airport

It’s still too early to assess the economic impact of Monday’s shutdown, said Eleanor Wan, the CEO of BEA Union Investment Management, an investment firm based in Hong Kong.

But she added that the airport closure will have a “negative psychological impact,” noting that several countries have already issued travel warnings for the city.

“I’m afraid there will be even fewer visitors coming and fewer hotel bookings,” Wan said. She also pointed out that Hong Kong hosts many conventions that keep its hotels and conference centers busy.

Right now, authorities have only said that Monday flights are affected. But even if the airport reopens soon, the city’s image has already taken a hit.

“This will severely damage its reputation and it will take a long time to recover,” said Thomas, the aviation expert.

The turmoil could also give rivals a leg up. Thomas pointed to places like Singapore as an alternative gateway to China and the rest of Asia that could benefit from Hong Kong’s problems.

Cities in mainland China, including Shanghai and Shenzhen, have also gradually developed major financial markets of their own.

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Economy

Trump says US Economy is Strong

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BERKELEY HEIGHTS, N.J. – President Donald Trump dismissed concerns of recession on Sunday and offered an optimistic outlook for the economy after last week’s steep drop in the financial markets.

“I don’t think we’re having a recession,” Trump told reporters as he returned to Washington from his New Jersey golf club. “We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”

A strong economy is key to Trump’s re-election prospects. Consumer confidence has dropped 6.4% since July. The president has spent most of the week at his golf club in New Jersey with much of his tweeting focused on talking up the economy.

Aides sought to reinforce that message during a series of appearances on the Sunday talk shows.

Larry Kudlow, Trump’s top economic adviser, dismissed fears of a looming recession and predicted the economy will perform well in the second half of 2019. He said that consumers are seeing higher wages and are able to spend and save more.

“We’re doing pretty darn well in my judgment. Let’s not be afraid of optimism,” Kudlow said.

Kudlow acknowledged a slowing energy sector, but said low interest rates will help housing, construction and auto sales.

Kudlow also defended the president’s use of tariffs on goods coming from China. Before he joined the administration, Kudlow was known for opposing tariffs and promoting free trade during his career as an economic analyst. Kudlow said Trump has taught him and others that the “China story has to be changed and reformed.”

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“We cannot let China pursue these unfair and unreciprocal trading practices,” Kudlow said.

Democratic presidential candidate Beto O’Rourke said the U.S. needed to work with allies to hold China accountable on trade. He said he fears Trump is driving the global economy into a recession.

economy is strong

“This current trade war that the president has entered our country into is not working,” O’Rourke said. “It is hammering the hell out of farmers across this country.”

Last month, the Federal Reserve reduced its benchmark rate — which affects many loans for households and businesses — by a quarter-point to a range of 2% to 2.25%. It’s the first rate cut since December 2008 during the depths of the Great Recession. Federal Reserve Chairman Jerome Powell stressed that the Fed was worried about the consequences of Trump’s trade war and sluggish economies overseas.

“Weak global growth and trade tensions are having an effect on the U.S. economy,” he said.

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Breaking with historical norms, Trump has been highly critical of Powell as he places blame for any economic weakness on the nation’s central bank for raising interest rates too much over the past two years.

“I think I could be helped out by the Fed, but the Fed doesn’t like helping me too much,” Trump complained Sunday.

Peter Navarro, who advises Trump on trade policy, shared that sentiment.

“The Federal Reserve chairman should look in the mirror and say, ‘I raised rates too far, too fast, and I cost this economy a full percentage point of growth,’” Navarro said.

Trump acknowledged at least a potential impact on consumers when he paused a planned 10 per cent tariff hike for many items coming from China, such as cellphones, laptops, video game consoles, some toys, computer monitors, shoes and clothing.

“We’re doing (it) just for Christmas season, just in case some of the tariffs could have an impact,” the president told reporters in New Jersey.

Navarro would not go even that far, saying Sunday “there’s no evidence whatsoever that Americans consumers are bearing any of this.”

Kudlow was interviewed on NBC’s “Meet the Press” and “Fox News Sunday.” O’Rourke spoke on NBC, and Navarro appeared on CNN’s “State of the Union” and CBS’ “Face the Nation.”

Trump’s trade war with China has been a target of criticism by Democrats vying to challenge him in 2020.

“There is clearly no strategy for dealing with the trade war in a way that will actually lead to results for American farmers or American consumers,” said Mayor Pete Buttigieg of South Bend, Indiana, a Democratic presidential candidate. He said on CNN that it was “a fool’s errand” to think tariff increases will compel China to change its economic approach.

Trump maintained that China’s economy is struggling because of the tariffs and would like to make a trade deal with the U.S. He said he could make a “bad deal” and the stock markets would go up, “but it wouldn’t be the right thing to do.”

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B.C. economy will be drag on by Housing market

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A slowdown in residential construction investment will be a drag on the B.C. economy over the next year or two, but this will be offset by a boom in non-residential building, according to a forecast released August 16 by Central 1 Credit Union.

Housing starts in the province are currently high, supported by presales in the active markets of the past few years. But this will slow down along with current new home sales, wrote Central 1’s deputy chief economist Bryan Yu.

Yu wrote, “Starts are forecast to dry up. New housing is a lagging indicator of the market and a downshift is anticipated with the cooling of demand. Timing is uncertain particularly given the longer lead time for large, complex multi-family projects. A pull back in momentum in the second half of this year contributes to a four per cent annual decline in starts in 2019, with a decline of 15 per cent in 2020. Residential investment will be an increasing drag on the economy [although] rental construction may pick up some of the slack.”

He said that he expects residential investment spending to decline three per cent in 2020 “after eking out a small increase in 2019” and then it will stay flat through 2021.

However, Yu expressed confidence that non-residential construction growth, especially in major projects, will offset some of these losses to the B.C. economy.

“Rising non-residential construction is … indicative of firm growth. Building permits rose more than 60 per cent through May, with strong gains across private and public sector intentions. Government investments in schools and hospitals have lifted activity, alongside major private sector initiatives including new office space in Vancouver. Adding to this is ongoing engineering work on major projects such as the Site C dam in the Peace region and the liquefied natural gas activity in the northwest.”

Looking further ahead, Yu wrote that major capital projects will be key drivers of B.C. economic activity.

He wrote, “Major capital projects will be key drivers of growth over the coming years. Build out of the LNG Canada liquefied natural gas facility in Kitimat and associated pipelines through to 2023, coupled with ongoing construction of the Site C dam and twinning of the Trans Mountain pipeline will highlight the rising investment cycle. Public works projects including the Patullo Bridge replacement, extension of the subway line in the Vancouver Broadway corridor will also lift construction. These projects [will] drive strong gains in non-residential investment, particularly in engineering and building construction through to 2021 before declining in 2022. As the liquefied natural gas project moves closer to completion, natural gas production and to a lesser extent, natural gas exports, will pick up in 2022 onwards.”

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Confidence in American Economy drops in August

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Consumers might be more hesitant to shop and spend if they grow more worried about the economy. A survey of consumer sentiment fell in August to the lowest level of the year.

American Economy: A measure of consumer confidence fell in August to the lowest level since the start of the year, reflecting fresh worries about trade tensions with China and the possibility of a looming recession.

The consumer sentiment survey fell to 92.1 this month from 98.4 in July, according to a preliminary reading from the University Michigan. Economists surveyed by MarketWatch had forecast a reading of 96.8.

Just a year and a half ago, the index touched 101.4 to mark the highest level since 2004.

What happened: A gauge that measures what consumers think about their own financial situation and the current health of the economy fell to 107.4 from 110.7, leaving it at a nearly two-year low.

Another measure that asks about expectations for the next six months declined to 82.3 from 90.5 — also a two-year bottom.

The Trump administration’s decision to apply tariffs to more Chinese imports and the Federal Reserve’s move to cut interest rates over worries about the economy made consumers more anxious, said Richard Curtin, chief economist of the survey.

Big picture: By many measures the U.S. economy still appears quite stable, but the worsening trade fight with China has hurt manufacturers and exporters, unnerved investors and put central bankers on edge. The Fed cut interest rates last month as an “insurance” policy against recession and it’s likely to do so again in September.

That hasn’t been enough to soothe investors, who dumped stocks this week and drove down the yield on U.S. Treasurys to stunningly low levels.

So far consumers haven’t cut back spending even as their worries grow. But waning confidence could cause them to do so in the months ahead, potentially weakening the economy. Consumer spending represents about 70% of U.S. economic activity.

What they are saying? “The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession,’ Curtin said.

Market reaction: The Dow Jones Industrial Average

DJIA, +1.12%

and S&P 500 index

SPX, +1.43%

rose in Friday trading. The 10-year Treasury yield

TMUBMUSD10Y, +2.09%

edged up to 1.55%.

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