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Executive Summary
Global markets seesawed in September, as optimism over trade and US growth helped markets rise once more, while worries over limited oil supply after an attack on oil installations in Saudi Arabia, concerns over the extent of US monetary policy action, and continued worries over recessions affected markets.
What happened in the US-China trade war?
After a significant escalation of tensions in August, September saw US-China trade tensions ease somewhat. Both China and the US delayed some tariffs by a few weeks each, while China exempted some US products, including soybeans and pork, from retaliatory tariffs. Along with this, the two countries signaled further talks and discussions, as the US declared its readiness for an interim deal if negotiated.
What has the Fed been saying?
The US Federal Reserve has cut rates once more, setting policy rates 25 BPS lower. However, projections by the Federal Reserve on its future policy action remained divided, with some Fed officials expecting a further rate cut this year, others seeing no more rate cuts, and some others even opposed to the most recent one.
The Fed’s division has been due to differing stories on the US economy. On one hand, global weakness and financial worry has clearly crept into the US economy, with many analysts expecting GDP growth to be lower than before. Worryingly, even US jobs growth seems to be weakening, with new hires and wage increases slowing down. On the other hand, strong performance by the US consumer has propped the economy up, and the large services sector of the economy has remained robust. In addition, the Fed has also been under political attack by the Trump administration. All eyes are on the US economy and how it will impact monetary policy in both the US and the rest of the world.
How have commodities been performing?
Attacks on Saudi Arabian oil installations severely affected the price of oil in September, with prices of Brent crude rising to a high of US$ 69.02 per barrel from early-month lows of US$ 58.26. While prices fell after the immediate aftermath of the attacks, experts warn that the extent of the disruption will only be felt in a few more weeks. Meanwhile, gold prices continued to be elevated, remaining above US$ 1,500 per ounce on most days of the month.
The health of the global economy remains weak according to views of many analysts, economists and investors. While US consumers are helping prop up the US economy, worries remain over how the rest of the world, particularly economies that might already be in recession, can cope in the near future. All eyes will be on the global economy as we enter the last quarter of 2019.
Top 5
Fed Cuts Interest Rates by Another Quarter Point
The Federal Reserve lowered interest rates by a quarter of a percentage point on Wednesday. While Powell expressed that the outlook for the U.S. economy was positive at the moment he suggested that they were prepared to move aggressively if the United States economy showed additional signs of weakening.
Global economy slowing much faster than expected
The outlook on the global economy continues to be dim, as the Organisation for Economic Cooperation and Development (OECD) downgraded its growth forecasts for 2019 to the slowest after the 2008 financial crisis. Driven chiefly by the US-China trade war, the OECD expects this slowdown to severely impact the growth rates of even fast-growing countries like China.
China's growth could slip below 6%, analysts warn, as trade war takes toll
The global economic slowdown could have significant negative impacts on China, as some economists are starting to predict economic growth below 6% for the Asian giant. The Chinese government has targeted a growth rate between 6-6.5%, and any signs of economic slowdown below this could mean even further stimulus into the economy.
China exempts some U.S. goods from retaliatory tariffs as fresh talks loom
China has provided tax exemptions to a small number of US exports, as the conversation on the US-China trade war drags on. While some see this move as a friendly gesture, others see it merely as a defensive move since China has also ramped up imports from other nations.
Real crunch from Saudi Arabia's oil outage has yet to be felt
Saudi Arabia’s ability to avert a global oil supply crunch will only become clear in a few weeks, because for now its crude held in storage can fill the gap and mask the scale of damage to its facilities, traders and analysts say.
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.