Investors Concerned about Trade Strains Augmenting Slow Global Growth

November 21, 2019

Share prices overnight in the Pacific Rim fell 1.6% in Hong Kong, 1.4% in South Korea, 1.2% in Singapore, 0.7% in Australia, 0.6% in Taiwan and Indonesia, 0.5% in Japan and 0.3% in China.

European stock markets are down but not as sharply as Asia’s.

The dollar today is little changed since Wednesday’s close. Ten-year sovereign debt yields are higher. So is the price of oil, but Comex gold has eased 0.2%.

A revised Economic Outlook published by the OECD projects the weakest global GDP growth this year and next (2.9%) since the Great Recession followed by a minuscule pick-up to 3.0% in 2021. Individual projected growth rates in 2020 include 2.0% in the U.S., 1.1% in Euroland, 1.0% in the U.K., 1.6% in Canada, 0.6% in Japan, 5.7% in China, 6.2% in India, 1.7%, 1.2%, and negative 1.7% in Brazil, Mexico and Argentina, and 1.2% in South Africa.

On the vital risk factor represented by U.S.-Sino trade strains, Chinese officials today accentuated the positive, claiming that reports from U.S. sources that talks may be breaking down are not true.

The impeachment hearings in the House Intelligence Committee aren’t grabbing the market’s attention. With Republicans standing by their man, there’s little concern that President Trump will be forced to leave, and the hearings seem to be crowding out interest in the race for the Democratic Party nomination. Last night’s Democratic candidate debate was uneventful.

Two central bank policy reviews today ended in decisions to leave interest rates unchanged.

  • Bank Indonesia’s 7-day repo rate was left unchanged at 5.0%. Such had been cut by 25 basis points each from July through October, but a released statement estimates resilient growth this year of 1.9% and foresees low and stable inflation. Accommodative macroprudential policies are supplementing the recent interest rate cuts in supporting economic growth.
  • The South African Reserve Bank‘s repo rate was left at 6.5%, but the decision against a change in policy was narrowly balanced with three supporting votes outweighing two dissents in favor of a 25-basis point reduction. A released statement of explanation projects meager growth of 0.5% this year followed by 1.4% in 2020 and 1.7% in 2021 with risks skewed to the downside. Inflation remains just shy of 4% with balanced risks. The repo rate was cut previously by 25 basis points in July, and the statement indicates an expectation among policymakers for a possible further rate cut around the third quarter of next year.

In other central bank news, minutes from the October 23-24 ECB Governing Council meeting revealed an effort to exhibit a more unified front publicly in favor to the resumption of quantitative stimulus and negative interest rates. It was the European Central Bank’s final policy review of Mario Draghi’s eight-year presidency.

Among released data around the world this Thursday, Japan reported a 1.5% jump in its all-industry index in September powered by increases of 1.7% in industrial production and 1.8% in service sector activity. But September’s rebound was more or less as analysts were expecting and still left the all industry index for the third quarter just 0.3% above the 2Q level and 1.2% higher than in the third quarter of 2018. Separate Japanese releases showed a 4.1% on-year decline in supermarket sales last month and confirmed that machine tool orders in October were 37.4% fewer than a year earlier. That’s the greatest on-year drop since June.

Consumer price inflation in Hong Kong unexpectedly ticked 0.1 percentage point lower to a 5-month low of 3.1% in October.

GDP in Singapore was only 0.5% greater in the third quarter than a year earlier, down from on-year growth of 2.6% in the previous four quarters through 3Q18.

French business sentiment was unchanged in November. There was a slight improvement in manufacturing to a 2-month high, but construction sentiment softened a bit.

Spain’s trade deficit in September equaled EUR 4.26 billion. The year-to-date EUR 25.45 billion deficit was 5.2% wider than that in the first nine months of 2018.

Britain’s underlying public sector net borrowing during the first seven months of the current fiscal year equaled GBP 46.3 billion and compares to GBP 42.0 billion a year earlier. Outstanding public sector debt at end-October equaled 80.4% of U.K. GDP.

Swiss industrial production rose 0.8% on quarter and 8.0% on year during the third quarter.

New U.S. jobless insurance claims are moving higher but at a very slow pace. Such equaled 227k in each of theĀ  past two reported weeks and averaged 221k over the past four weeks, up from 213k in the eight weeks through August 24th.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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