Summary for the 22nd of May 2019


OECD’s Economic Outlook has concluded that last year’s warning about the negative consequences from US and China’s trade conflict is becoming a reality. The global growth is projected to be only 3.2% this year, almost one percent lower than what has been projected last year. Europe and Asia are projected to have the weakest growth due to declining trade and investments. The global economy has been in a cyclical upside last year, now divergence has emerged between sectors and countries, depending on their exposure to trade tensions, the strength of fiscal responses and policy uncertainties. The OECD also mentions that if the US and China implements 25% tariffs on all trade, the global economy will slow even further by 0.6%.

The trade conflict and weaker than expected economic indicators from China have led its currency to depreciate to the weakest level since last autumn. Against the US dollars, the yuan is edging closer to the psychological value of 7, a level which has earlier prompted the Chinese government to intervene. China’s currency is a mixture of a controlled flow where the market, in a sense, can affect the currency, but also the Chinese government keeps the currency value under control.

Many are wondering if the Chinese government will let its currency depreciate even further to let the Chinese companies to be able to compete amidst the ongoing trade war with the US. The financial markets are afraid of the positive effect from weaker yuan will lead to massive capital outflow from China, which has been the reason China’s central bank has to use 25% of its cash reserve to buy its own currency in 2015 and 2016.

The risk of capital outflow isn’t as high now as it has been. Chinese companies have hedged more of their risks from currency fluctuations, and the Chinese government has strengthened its control of currency exchange.

Market sentiments were a little better yesterday when the US delayed Huawei ban for three months. Though, the US might blacklist even more Chinese tech companies in the future.

Indices for 22.05.2019
Dow: +0.8% (21st  of May)
S&P 500: +0.9% (21st  of May)
Nasdaq: +1.1% (21st  of May)
Nikkei: +0.1%  (22nd  of May)
Chinese indices: +0.3% (22nd  of May)
STOXX Europe 600 Index: -0.08% (22nd  of May)

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