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Best of the Web - Oct '19

Executive Summary

Global markets rebounded in October, due to optimism over an interim trade deal between the US and China. However, underlying weaknesses in many major economies still weighed heavily on the future prospects of the global economy.

What caused optimism in the US-China trade war?

USA and China announced an interim deal in their trade war, a sign that most took as a moderation in trade tensions. Some tariffs on Chinese exports would be delayed once this deal comes through, and China would step up agricultural purchases from the US. However, the deal is yet to be finalized and the US has confirmed that tariffs meant to come into effect in December are not part of this deal.

Does this mean the US and Chinese economies are doing well again?

While the moderation in trade concerns added some positives to the two largest economies in the world, underlying weaknesses still added considerable worry. China recorded a third quarter growth rate of 6%, the lowest in 30 years, raising concerns over a continued Chinese slowdown. US data showed a fall in retail sales, a signal that the US consumption was beginning to slow down. The US also put in place new tariffs on European exports, raising worries that one trade war was being replaced with another. This complexity is likely to affect the US Federal Reserve, as they gear up for a monetary policy decision on October 31st.

How did the rest of the global economy do?

The rest of the global economy continued on a more volatile path. Industrial performance across the globe continued to weaken, with many countries seeing their industrial sectors in a technical recession. This was most acute in Europe, as the impacts of trade tensions combined with continued uncertainty over Brexit, pushing one of the world’s largest export markets closer towards recession.

How have commodities been performing?

Despite the optimism from the announcement of the US-China interim trade deal, oil prices remained relatively subdued due to an underlying sense of weaker global demand. Brent crude rose from a low of US$ 57.69 per barrel to a high of US$ 61.17 per barrel. Gold prices were similarly stable, moving around the US$ 1,500 per ounce mark.

While the global economy has been supported by the current truce in US-China trade concerns, analysts are still concerned of the possibility of a significant economic slowdown moving into 2020. With the numerous factors in play, it is yet to be seen how soon such a weakness would materialize.


Top 5

IMF predicts worst year for global economy since financial crisis

2019 is likely to be the weakest year for the global economy since the 2008 financial crisis according to IMF expectations. In a recently released an update to the IMF’s flagship World Economic Outlook, this slowdown is especially driven by weaknesses in emerging and developing economies, which have borne the brunt of the weaknesses arising from trade related concerns.

Trade War Pause Leaves Few Happy

While the recent interim trade deal between the US and China could lead to further positivity down the line, some analysts are questioning the positive impacts on the US economy. Agricultural purchases by China could end up benefiting China more than the US, and without any inclination of progress on underlying issues, the peace might be temporary.

China’s Growth Slows To 30-Year Low, What Does It Mean For The Global Economy?

While weak economic growth in China is cause for concern, the underlying fundamentals in emerging market economies in Asia could mean that they might escape the worst of any global economic downturn. Deeply integrated supply and value chains in Asia could mean that the impacts of trade don’t accrue to any one nation, but to a global sense of uncertainty, a sense that these same value chains could protect Asia from.

Uncertainties escalate for Fed as it weighs another rate cut

An upcoming monetary policy decision by the US Federal Reserve is likely to be divided, as the Fed will be required to weigh up the possibilities of numerous geopolitical scenarios and how they might impact the US economy. While the market expects the Fed to continue supporting the economy through a rate cut, worries remain whether the Fed will merely run out of ammo when an actual recession comes about.

Is the U.S. Consumer ‘Wavering’? Slowing Retail Sales Are a Warning Sign That the Economy May Be in Trouble

Despite the interim trade deal being negotiated between the US and China, the impacts of the current trade tensions are being felt by the US consumer. Retail sales fell unexpectedly in September, and analysts are starting to be concerned about whether a weakening US consumer could push the US economy into recession.

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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