Author: openjargon

• If the US goes to war with Russia or China, it could have to deal with both adversaries at once, US intel leaders warn.
• Russia and China have developed what they call a "no limits" partnership. 
• The two also conducted a joint military exercise near Taiwan for the first time, per a US official.

In the event of a conflict with either Russia or China, US forces may find themselves dealing with both adversaries due to their "cooperative" partnership, according to recent warnings from top US intelligence officials.

And the chance of the US finding itself at war with these rivals is much more likely now than it was a few years ago, prompting the US to revisit its thinking and military planning.

During Thursday's US Senate Committee on Armed Services hearing on worldwide threats, Avril D. Haines, director of national intelligence, and Lt. Gen. Jeffrey A. Kruse, director of the Defense Intelligence Agency, commented on recent cooperation between Russia and China, noting that it indicated that the two could come to each other's aid in a war with the US.

In the hearing, Haines highlighted ties between the two, from military activities to economics, politics, and technology. She added that this was prompting new government planning "across the board."

When asked about whether this dynamic meant the US had to prepare to fight both adversaries at the same time should conflict begin with one, Haines said it was possible, but the likelihood "depended on the scenario." Kruse, however, said that it was a greater possibility than it was a few years ago.

"Bottom line is that, basically, if we were to have a conflict with one, the chances are we would have a second front," Kruse said.

Kruse also noted that what the Department of Defense had seen over past few years had "caused the department to relook at its analysis and become even more concerned" about joint force requirements in an environment where Russia or China could support one another in a conflict.

The "no limits" partnership between China and Russia, declared in February 2022 just before Russia invaded Ukraine, is also prompting the Pentagon to change its thinking about what potential conflict with either rival would look like.

"We are in the middle of that revision today," Kruse said.

Perhaps one of the most glaring pieces of evidence, beyond China's support for Russia's war in Ukraine and helping Russia evade sanctions, is the military cooperation pertaining to Taiwan, long a potential flashpoint.

Haines explained to the Senate committee that Russia and China conducted exercises related to Taiwan for the first time, highlighting a possibility that should China decide to pursue an invasion or blockade of the island, Russia could be involved.

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• Hope Hicks, a former longtime advisor to Donald Trump, took the witness stand in his hush-money trial Friday.
• Just after Trump's lawyer began cross-examining her, she broke down in tears.
• Hicks was Trump's 2016 campaign press secretary and later his White House communications director.

Hope Hicks, an ex-White House aide and longtime advisor to Donald Trump, broke down in tears while on the witness stand on Friday in the former president's hush-money criminal trial.

Her voice cracked as she began answering questions from Trump's lawyer Emil Bove Thursday afternoon, who had asked her whether the Trump Organization created the position of Communications Director to get her to join the company in October 2014.

After answering "yes," Hicks grabbed a tissue and turned to her left while sitting on the witness stand. She turned her face and body away from the courtroom audience.

"Ms. Hicks, do you need a break?" the trial judge Juan Merchan asked.

"Yes, please," she responded in a cracked voice, while facing away from the judge.

After the judge announced a break, she walked across the courtroom, passing by Trump without looking at him.

Hicks is a key witness in the trial, potentially linking Trump directly to what prosecutors call an election-influencing scheme to purchase a porn star's silence in the days before the 2016 presidential election.

Hicks — Trump's 2016 campaign press secretary and later his White House communications director — said on the stand in the Manhattan courtroom that she was testifying pursuant to a subpoena in the historic case.

Prosecutors in the Manhattan District Attorney's Office allege Trump illegally falsified 34 business records by covering up a $130,000 hush-money payment to porn star Stormy Daniels.

The payment, handled by Trump's ex-personal attorney and former fixer Michael Cohen, was made to Daniels 11 days before the 2016 presidential election to buy her silence over a 2006 sexual encounter with Trump, prosecutors allege.

While Trump's lawyers have claimed the arrangements were made to avoid personal embarrassment, Hicks — Trump's 2016 campaign communications director — testified about working with Trump and Cohen to respond to media inquiries about the scandal.

In their opening statements, prosecutors said the campaign was particularly vulnerable to the perceptions of female voters following the publication of the Access Hollywood tape, and so Trump sprung into action to block Daniels from going public about an affair she says she had with him.

"I was definitely concerned this was going to be a massive story and make the news cycle for the next couple of days — at least," Hicks said on the witness stand earlier Friday, explaining her reaction to learning about the tape.

In her testimony, Hicks hurt Trump by showing how deeply he — and the campaign — worried about infidelity stories going public in the weeks before the election.

Hicks became emotional as prosecutors wrapped up their direct examination of her.

Her final answer helped bolster the district attorney's case. She said Trump was happy that news of the hush-money arrangement with Daniels had become public in 2018 "rather than just before the election."

Hicks took the witness stand again after about a five-minute break, looking flushed but calmer.

Hicks was one of Trump's most trusted advisors in his 2016 climb to the presidency and federal prosecutors have said in court papers from the 2019 prosecution of Michael Cohen that she could directly tie Trump to the so-called "catch-and-kill" scheme.

She was in on a flurry of phone calls and emails involving Trump, Cohen, and two top executives at the National Enquirer, in the wake of the publication of Trump's notorious Access Hollywood tape, prosecutors have alleged.

"I was concerned. Very concerned," she said of receiving a transcript of the Access Hollywood tape.

Hicks was also in on a three-way conference call with Trump and Cohen as they allegedly talked about safeguarding Clifford's silence, the feds alleged on pages 41 and 42 of a 269-page search warrant.

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• A former aide to Chinese billionaire Guo Wengui has pleaded guilty to fraud.
• Yvette Wang admitted to conspiracy weeks before her ex-boss is set to stand trial.
• Guo is accused of defrauding online followers out of more than $1 billion.

Yvette Wang, a former aide to indicted Chinese billionaire Guo Wengui, pleaded guilty to fraud, federal prosecutors said Friday.

Wang used to work for Guo, a self-exiled rapper, influencer, crypto guru, and real estate mogul who himself is facing 11 counts of fraud and money laundering charges.

William Je, Guo's financier, is facing the same charges — plus an additional count of obstruction of justice, according to the Department of Justice.

Federal prosecutors allege that Guo was the leader of a conspiracy that asked hundreds of thousands of followers to make investments based on false statements. He used the proceeds to buy a New Jersey mansion, a $3.5 million Ferrari, two $36,000 mattresses, and other extravagant purchases, prosecutors allege.

US Attorney Damian Williams said Friday that Wang, 45, played "a leadership role" in the scheme, which "collected more than $1 billion from innocent victims located throughout the country and the world."

Wang's guilty pleas — to one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering — carry a maximum sentence of 10 years.

She also agreed to pay $1.4 billion in restitution and forfeit the same amount to the US, according to the DOJ.

She will be sentenced on September 10. Wang's lawyers did not immediately respond to Business Insider's request for comment.

Guo, an associate of longtime Donald Trump advisor Steve Bannon, is set to stand trial later this month.

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• Defense tapes played in court Thursday have been posted to SoundCloud by Law360.
• They are recordings of 2018 phone calls between the two lawyers who struck the 2016 hush-money deal.
• They suggest an alternate reality to the DA's — where Trump is more victim than mastermind. 

On the witness stand Thursday, Stormy Daniels' lawyer, Keith Davidson, told jurors that it was easy to tell when Michael Cohen was recording their phone calls.

Cohen would suddenly sound "very structured."

"Ordinarily, he was sort of all over the place," Davidson testified of Donald Trump's fixer-turned-nemesis.

Davidson's surmise — that Cohen was likely taping him at the time — makes a pair of newly-released defense tapes all the more compelling and perplexing.

The tapes are from March of 2018. In them, the lawyer for then-President Trump chats with the former lawyer for a porn star.

They rehash old times: that hush-money deal they hammered out together days before the 2016 presidential election, a deal now at the center of Trump's ongoing criminal trial.

"Sometimes people get settler's remorse, you know?" Davidson says on one tape, in what he hesitatingly admitted on the stand Thursday was a reference to Daniels.

"And other times, people think that, hey, I need to resolve this case before a date certain, because this is when I have the most" Davidson says.

If Davidson really suspected he was being taped, that suspicion did not stop him from creating a record that, six years later, could damage not only his own credibility, but that of his porn star former client, and the prosecution.

Manhattan District Attorney Alvin Bragg has spent two weeks so far presenting a case that describes Trump as the mastermind of an election interference conspiracy.

Daniels, meanwhile, has portrayed herself as signing the hush-money deal in fear for her life.

She wanted to create a paper trail linking her name to Trump's, she says in last month's documentary, "so that he could not have me killed."

The tapes show the case, and Daniels, in a different light. They raise the question of whether Daniels' agent and Davidson, eager for cash, "leveraged" her story of a tryst with Trump in the crucial waning days of the 2016 election.

Trump's side is already pushing an "extortion" theory, using much of their cross-examination of Davidson Thursday to grill him on his past hush-money cases involving celebrities and their scandals.

"I wouldn't be surprised if he comes out and says, you know what, Stormy Daniels, she wanted this money more than you could ever imagine," Davidson says on another tape.

Davidson said Thursday that he was talking about an upcoming TV interview, and was describing what he believed would be said during that interview by Anthony Kotzev, the then-boyfriend of Daniels' agent, Gina Rodriguez.

"I remember hearing her on the phone," Davidson says on tape, referring to Rodriguez.

"Saying, 'You fucking Keith Davidson. You better settle this goddamn story because if he loses this election — and he is going to lose — if he loses this election, we all lose all fucking leverage. This case is worth zero."

Davidson was describing someone else's opinion, not necessarily his own. Still, as Davidson's angry words from 2018 played in the courtroom, they may have rang a bell that cannot be unrung in jurors' memories.

Ultimately, whether Trump was the victim or mastermind of the hush-money deal may prove immaterial.

Prosecutors say that throughout 2017, his first year in office, Trump falsified 34 business records, including nine checks to Cohen he signed personally.

The falsifications are felonies because they hid an unlawful conspiracy to influence the 2016 election, the District Attorney alleges.

Whether Trump was playing Daniels or she was playing him — or both, as is also possible — has no bearing on the lawfulness of the documents themselves, prosecutors have argued.

"This case is about a criminal conspiracy and a coverup," prosecutor Matthew Colangelo told jurors at the start of last week, in the opening assertion of his opening statements.

And while Colangelo told jurors that prosecutors will prove Trump "orchestrated" an election-influencing hush-money conspiracy, the charges do not require proof of who played whom.

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• The economy is settling into its new shape, and it might mean lower pay for new workers.
• Job growth in April was concentrated in traditionally low-paying sectors like healthcare and retail.
• Wage growth, though slower, still outpaces inflation, which is still a boon for workers.

The economy is settling into its new shape after a long roller coaster ride — and it's not all good news if you're looking to land a big paycheck.

Jobs are still being added at a healthy clip and unemployment is still near a sustained historic low, according to the latest jobs report. It's exactly what the Federal Reserve might be looking for, and signals continued good news for an economy that's been bolstered by a booming labor market.

"The growth in wages have outpaced inflation, which translates into more money in the pockets of working families. That is not an accident," Acting Secretary of Labor Julie Su told Business Insider.

But there's a dissonance in the job market; if you're a college-educated, white-collar worker, you might know that all too well. That's because the industries that led job growth in April are traditionally low-paying.

It's yet another sign that higher-paying jobs are becoming more scarce, and it comes as more Americans find themselves employed, but not necessarily stable. It might also be falling more on the shoulders of women, who are seeing historic employment figures.

For instance, the private education and health services sector led the pack in job growth last month — and while that might sound high-paying on its face, the data under the hood tells a different story. The bulk of job growth in the sector is happening in fields like healthcare and social assistance, which includes the traditionally low-paid workers in nursing and residential care facilities, and home healthcare workers.

"Healthcare is not just doing well," Julia Pollak, the chief economist at ZipRecruiter, told Business Insider. "Healthcare is dominating everything. It's added 56,000 jobs in this report, but it has added over 750,000 jobs over the past year."

Indeed, job growth is concentrated in industries that are historically low-paying — and continue to pay less than the average across private industries. Those industries, and the subsets within them that are seeing big growth, also happen to be female-dominated, as Kate Bahn, the chief economist and SVP of research at the Institute for Women's Policy Research, told BI.

"Where there's been job growth has not been sectors where there has been high wage growth," Bahn said, adding: "That's interesting that there's high labor demand in those industries — clearly — but it has not translated into high wage growth."

The three sectors that saw net job growth of at least 20,000 last month all have average wages below those for all private employees:

That points to a continued dynamic in the labor market: White-collar workers are seeing an employment slump, as Business Insider's Aki Ito chronicled. The hiring rate for those making over $96,000 is at just 0.5% — its lowest level since 2014.

It's all a bit of a mixed bag. As Pollak notes, "wage growth has come down sharply, but it's mostly come down in industries where it was very rapid before."

Wages in the lowest-paying sectors have grown faster than those in higher-paying industries over the last few years, as demand for hourly workers skyrocketed and employers turned toward raising pay and benefits to try to plug shortages in a tight labor market.

"I think low-paid jobs have gotten a little bit better compared to how really awful they used to be," Bahn said.

But as Bahn notes, "there's a lot of evidence that women are really constrained and limited in their labor mobility when they are in these career paths of women-dominated jobs like healthcare and education."

And the rise of these jobs might also be further contributing to another growing group undergirding some of the holes in the economy. A growing share of workers in the US are what's known as "ALICE": Asset Limited, Income Constrained, Employed. That means that they're holding down jobs, and making enough money to be ineligible for many social services — but still aren't getting by.

The workers below that ALICE threshold are doing even worse. They're concentrated in industries like retail trade, healthcare and social assistance, and accommodation and food services — all of the jobs currently booming.

But even if wage growth isn't as high as it was before, Nick Bunker — the economic research director for North America for Indeed Hiring Lab — pointed out to Business Insider that "wages continue to outpace inflation," which could be good for job seekers.

"I think that's a sign that, hey, you're going to get more bang for every wage gain than you have in the past," Bunker said.

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• Houthi attacks on ships in the Red Sea and Gulf of Aden have gone on for months.
• The US intelligence chief said the threat is likely to remain active for a while.
• This is partly because the Houthis continue to make weaponry and receive help from Iran, she said.

For months, the Houthis have relentlessly fired missiles and drones at merchant and Western naval vessels in key Middle Eastern waterways.

While American and partner forces have managed to degrade the Iran-backed rebels' capabilities to an extent, through strikes directly in Yemen, the US intelligence chief testified this week that these attacks aren't going to slow down anytime soon.

"Our assessment is essentially that it is going to remain active for some time," Director of National Intelligence Avril Haines said on Thursday in response to questions from US lawmakers about how long the Houthi threat will continue.

Speaking to the Senate Committee on Armed Services during a hearing on global threats, Haines said her assessment is, in part, because Houthi leader Abdul Malik al-Houthi sees domestic political advantage for some of his actions, and he is interested in advancing his reputation across the Middle East through the attacks.

The Houthis are also indigenously producing lots of drones and other weaponry inside Yemen while continuing to receive assistance from Iran, Haines added. Tehran has backed the militant group for several years.

"Neither of those things are likely to change in the near future," she said. "Now, that doesn't mean that the strikes that the Department of Defense and the coalition‚ with our allies, have taken haven't had impact. They have, but it's been insufficient to really stop the Houthis from going down this road."

The US and UK militaries have carried out several rounds of joint strikes targeting Houthi facilities across Yemen. On a far more frequent basis, however, American forces have carried out unilateral, preemptive strikes targeting drones or missiles before the rebels can fire them at nearby ships in the Red Sea and Gulf of Aden.

Most recently, on Thursday, US Central Command said it engaged and destroyed three Houthi drones in Yemen after determining that the weapons "presented an imminent threat" to American and coalition forces, as well as commercial ships in the region.

The Houthis have previously asserted that their ongoing attacks are directly tied to Israel's military campaign in the Gaza Strip, but US officials have often pushed back on these claims, citing the wide range of nationalities that the rebels have attacked. One incident in March led to several fatalities among a multinational crew.

When asked by Virginia Sen. Tim Kaine during Thursday's hearing whether a ceasefire between Israel and Hamas would significantly reduce the pace of Houthi attacks, Haines said it's "honestly unknown at this stage."

"They have indicated at different times that they would comply with a ceasefire, so I think there's a fair possibility," Haines replied. "One of the things that's been challenging is that their rationale for their attacks has shifted over time a bit, and it's gotten more complicated."

Beyond going after ships in the Red Sea and Gulf of Aden, the Houthis, as part of Iran's broader proxy network that spans the region, have also launched missiles at Israel. The rebels, for instance, participated in Tehran's massive and unprecedented attack on the country last month.

The Houthis' attacks on vessels transiting the Red Sea, which has disrupted international shipping, and on Israel create "a real risk of broader escalation," the Office of the Director of National Intelligence concluded in its annual threat assessment report earlier this year.

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• Pro-Russia hackers are targeting infrastructure systems in the US and Europe, says a security advisory.
• Hackers have infiltrated infrastructure sectors in water, dams, energy, and agriculture.
• Security agencies say improved cyber hygiene can prevent these breaches.

Infrastructure systems in the US and Europe are vulnerable targets for pro-Russia hackers, numerous security agencies cautioned in a May 1 advisory statement.

"In early 2024, the authoring organizations observed pro-Russia hacktivists targeting vulnerable industrial control systems in North America and Europe," the advisory said, which was authored by the FBI, the Cybersecurity and Infrastructure Security Agency, along with other domestic and international bureaus.

The agencies observed pro-Russia hackers compromise the operational technology of infrastructure such as "Water and Wastewater Systems (WWS), Dams, Energy, and Food and Agriculture Sectors."

Pro-Russia hackers could be breaking into these systems in various ways. Some through points include entering outdated software and cracking weak passwords.

While the hackers have mainly caused "nuisance effects," the advisory noted that "historically, these hacktivists have been known to exaggerate their capabilities and impacts to targets." The unauthorized access is problematic though.

The authoring agencies have found that interferences can be avoided through improved cyber hygiene and guidance among systems, which is further explained in the advisory.

The advisory note said that actions such as changing passwords for operational technology, creating multi-factor authentication for accessing that technology, and limiting the exposure of operational technology to the internet should be taken immediately.

Earlier this year, there was a hack reported on a Texas water tower, causing it to overflow. The group of hackers believed to be responsible for the disruption is called Sandworm, and the group was linked to Russia in April.

Mandiant, a cybersecurity firm owned by Google, described Sandworm as a "dynamic and operationally mature threat actor that is actively engaged in the full spectrum of espionage, attack, and influence operations."

The Department of Justice charged several members of Sandworm in 2020 with crimes related to interfering with the US presidential election in 2016. Sandworm is also known for its hacking disruptions on a global scale, previously targeting Ukraine and South Korea.

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• Friday's jobs report has stamped out worry of a stagflationary economy.
• Fears of this scenario have flared over the past weak, set off by a weak first-quarter GDP print.
• But payroll additions came in neither too hot nor too cold, and average hourly earnings fell, helping dispel a stagflation narrative.

The US economy looks to have steered clear of danger after the specter of stagflation spooked markets and put analysts on edge in recent weeks.

The key development was the April jobs report on Friday, which showed 175,000 positions were added last month, coming in well below the consensus forecast of 238,000. Further, average hourly earnings unexpectedly declined to 0.2%.

It was the perfect mix of data to thwart the stagflation narrative: Job additions weren't weak enough to signal slowdown trouble, but also not strong enough to support higher-for-longer interest rates. And since elevated labor costs are part of the stagflation equation, the dip in average hourly earnings also signaled a period of languid growth will be avoided.

The report brought full circle a stagflation discussion that started with the latest GDP print, which showed both a substantial slowdown from previous quarters and stubbornly high underlying inflation data. It sent alarm bells ringing around stagflation, which occurs when inflation stays high despite a cooling economy.

The elevated risk also caught the eye of Wall Street. JPMorgan's chief strategist Marko Kolanovic was among the group, noting that such a scenario could come to challenge hopes for a US soft landing.

Fear is certainly warranted given the last stagflationary regime the US experienced, back in the 1970s. The era was plagued by high consumer prices, recessions, and a weak stock market.

And worry people did. According to Bank of America, stagflation-related headlines in the media spiked to a two-year high in the week following the GDP report.

But Friday's jobs report brought needed relief.

To top economist Mohamed El-Erian, Friday's data was a "Goldilocks report that will please the Fed and please the markets," he told Bloomberg TV on Friday. Stocks are flying higher as a result, and interest rate cut bets rose back up.

It would have been a different story if the report printed even weaker, however. While light, the data remained above a stagflationary threshold, diffusing earlier concerns, and avoiding a possible market sell-off.

According to estimates from Bank of America's Michael Harnett — published before the data was available — if the US added less than 125,000 in April, and average hourly earnings ticked above 0.4% from a month ago, that would only deepen the stagflationary outlook.

In that situation, odds of a equity sell-off were high, Harnett said. Instead, the benchmark S&P 500 has shot up to 1.14% as of 12 p.m. ET on Friday.

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• A YouTuber tested if Tesla's  Cybertruck update makes the frunk safer by closing it on his finger.
• The frunk update worked well on various produce, but closed on his finger, leaving a mark.
• A Tesla engineer said the test was done wrong because the frunk increases its pressure after previously encountering resistance.

Tesla released an update to make the Tesla Cybertruck frunk safer when it closes.

So YouTuber Jeremy Judkins tested out whether the update actually makes the frunk safer by closing the frunk on a carrot, cucumber, banana — and eventually his finger.

The recent update is supposed to better detect obstructions before the frunk finishes closing and follows a series of viral videos of the frunk slicing through carrots while closing.

The YouTuber started the video by closing the frunk on produce like a carrot, cucumber, and banana before the update was installed. The frunk chopped all of the produce when it was placed in the frunk.

"It is destroying everything," the YouTuber said.

The YouTuber then tried the same test with the update installed and was impressed with the improvement.

"With just a software update, the Tesla Cybertruck frunk is way safer," he said. "We witnessed it destroy a ton of vegetables, and then post-update did nothing."

But when Judkins tried putting a thin tip of a carrot in the frunk, it did break off. He said that left people wondering if a fingertip would also come off if it got caught in the frunk.

Judkins then closed the frunk on his arm, which he said put a little pressure on it but wasn't too bad. Next, he tried out his hand, which left a line, but also wasn't severe.

Finally, Judkins placed his finger in the frunk. The frunk closed on his finger and left it shaking, with a dent, and what looked like a small cut or skin tear.

"It kind of locked down on it and I was a little freaked out because I didn't know how to open it up," Judkins said. "I was kind of trapped."

The YouTuber said the frunk detected resistance for a little bit and opened.

Judkins said that after the finger test, a lead cybertruck engineer at Tesla said he did the video wrong.

The engineer told him the frunk increases in pressure every single time it closes and detects resistance, Judkins said. It's going to assume you want to close the frunk and maybe something like a bag is getting in the way, which would make it close harder.

"Using this information, that means it closed on my finger harder than my hand and way harder than my arm," the YouTuber wrote.

Judkins said the algorithm should favor safety instead of a bag getting in the way. But even when Judkins put a bag in the way of closing the frunk, it still closed, which meant it didn't quite respond to resistance the way it should have.

The YouTuber attempted to try the test again with his finger without trying other objects or his arm first but backed away every time the frunk was about to close.

"You don't know how bad it hurt the first time," Judkins said. "I don't want to do it again."

That's probably good advice for everyone: keep your fingers away from closing lids — they're safest that way.

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• Stocks and the economy look strong but there are four factors that could pose a problem, Capital Economics said. 
• Geopolitical risks in the Middle East and high interest rates are big risks to markets. 
• A depreciation of the Chinese yuan and soaring US debt are also the two factors investors need to watch. 

The market and the economy are on pretty solid footing but there's a host of factors that could spark a quick deterioration of conditions, Capital Economics said in a report this week. 

The low level of risk premia suggests there's "plenty of scope [for] more material worsening of financial conditions" if four key factors start to break down, according to Capital Economics' Ruben Gargallo Abargues and Jonas Goltermann. 

First, the two economists noted that ongoing tensions in the Middle East could further disrupt the energy market, with Brent crude oil price showing no increase since mid-March despite being "the most obvious proxy" for the escalating Israel-Hamas war.

"Similarly, implied volatility on oil options remains low by historical standards. And, while risk reversals, a measure of the perceived balance between upside and downside risks, rose in early April, that increase has since been reversed," they wrote on Friday. 

Second, despite the Federal Reserve signaling no rate hike this year during Wednesday's FOMC meeting, stubborn inflation keeping interest rates high adds substantial pressure on asset prices.

"As we saw in 2022 and 2023, and to some extent over the past month, rapid rises in real interest rates could weigh on asset prices. Moreover, a hawkish pivot by the Fed would probably lead to renewed volatility in bond markets," Abargues and Goltermann said. 

Thirdly, with the rising value of the Chinese yuan, any depreciation could trigger currency market volatility elsewhere.

"By enforcing a de facto peg against the US dollar when most other currencies are depreciating, the renminbi has appreciated in trade-weighted terms. If the Chinese authorities changed their approach and opted for devaluation, this would probably lead to higher volatility across currency markets," the note said. 

Finally, the much-feared US debt does indeed pose risk of financial instability, they argued. "Bond king" Bill Gross this week said he sees rampant borrowing as the only way to propel GDP growth, while Capital Economics said that the cost of insuring against default on US debt via credit default swaps remains slightly elevated compared to normal levels.

"Neither presidential candidate appears keen on fiscal consolidation. If fiscal policy stays on its current track, it is plausible that the US could, at some point, fall foul of the 'bond market vigilantes' increasing risk premia across the board, not just in Treasuries," Abargues and Goltermann added.

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