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Best of Web - Nov '19

Executive Summary

Global markets continued a choppy recovery in November, as the US and China continued their conversation on an interim “Phase I” deal. However, continued trouble across the world continued to weigh down on future prospects for the health of the global economy.

What’s happening with the US-China interim deal?

Both countries have proclaimed more than a readiness to sign such a deal, and reports indicate that a deal could include additional purchases of US agricultural products by China as well as a phased rollback of tariffs. However, the optimism around these talks have been punctuated by moments of uncertainty, with some analysts expecting a deal being postponed until 2020.

How did this affect the US and Chinese economies?

The US financial markets did considerably well on the back of trade related optimism, with stocks reaching record highs. The Federal Reserve supported this optimism by cutting rates for the 3rd time this year on the 31st of October. But the Fed noted that a stabilizing economy meant that they would keep rates stable for the rest of the year. However, some analysts see a gloomier picture, expecting 4th quarter US growth to fall to below 0.5%.

While the positivity around trade did boost sentiment in China, prospects on the economy remained muted. While the government indicated a readiness to add more stimulus into the economy, the level of this stimulus had to be restricted due to concerns over rising prices and an increasing domestic debt burden. While a trade deal is likely to help the economy in the short run, underlying weaknesses could still continue to weaken China’s economic growth.

How did the rest of the global economy do?

Improvements in sentiment arising from US-China trade talks helped most economies around the world, supported further by positivity in other key economies. Emerging markets continued to cut rates and improving their near-term growth prospects. But analysts warned that in the case of an economic crisis, lower rates could mean that emerging central banks have less space for support, and end up harming the developing world instead. Europe saw a bit of a turnaround as well, with Germany avoiding recession and on track to continue growing. However, a continued contraction in manufacturing remains a concern. Such mixed performance is likely to add uncertainty to the global economy moving forward.

How have commodities been performing?

With expectations of more positive global demand for energy, oil prices rose in November. Brent crude rose from US$ 61.69 per barrel to US$ 62.62 per barrel by the 22nd of November, with a high of US$ 63.97 per barrel (21st Nov) and a low of US$60.91 per barrel (19th Nov).

Reflecting the increased confidence in the global economy, gold prices fell this month from a high of US$ 1511.40 per ounce (11th Nov) to a low of US$ 1461.55 per ounce by 22nd November, with a low of US$ 1457.10 per ounce (11th Nov)

Top 5

China says 'in depth' talks on tariffs removal underway with US

The status of the interim US-China trade deal is once more looking positive, as China notes that both countries are holding “in depth” talks regarding the removal of tariffs. However, these comments come just one day after President Trump denied such progress. This see-saw nature of the trade resolution is likely to keep markets volatile until some certainty is known.

Fed’s Powell sees steady growth, signals pause in rate cuts

The US Federal Reserve expects the US economy to avoid further slowdown and is hence planning on holding it policy rates, according to Fed Chair Jay Powell. This expectation is driven by a forecast of robust job growth and stable inflation, but trade related concerns are especially noted to be a factor that could draw policy rates lower again.

Global economy dodges recession by narrowest of margins: Kemp

While trade and growth related concerns have pushed the fortunes of the global economy close to a recession, slightly improved prospects in manufacturing and optimism around a Sino-American deal has meant that the global economy could slowly recover. However, risks remain weighted to the downside and any further shock could severely destabilise the global economy.

Global economy on thin ice with frail trio from China to Germany

The underlying story of the global economy is remaining weak, as economic powerhouses such as China, Japan, and Germany are showing major weakness. While trade tensions are exacerbating these issues, analysts warn that the weakness runs deeper than that, and even a trade resolution might not be enough to save the global economy.

Morgan Stanley says global growth should recover in 2020 as trade tensions and monetary policy ease

Morgan Stanley forecasts the global economic growth to be 3.2% in 2020. This largely depends on the resolution of trade tensions where business uncertainties would be reduced making policy stimulus effective. If the tariffs scheduled for December 15th comes into effect, the recovery would take until the third quarter of 2020.

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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