Summary for the 8th of May 2019


While the current uncertainty in the financial markets was thanks to the trade conflict between the US and China, yesterday’s fall in the stock markets should also be seen together with EU-commission’s downward adjustment of the economic growth in the EU Area for 2019. Though, there wasn’t a big forecast adjustment of the economic growth for the EU area, the adjustments for Italy and Germany gave uncertainty to the financial markets.

Economic growth in Italy was forecasted to be only 0.1% this year, half of what was forecasted in February. Budget balance was forecasted to be -3.5% of GDP by 2020. The announcement gave more conflict between the EU and the Italian government.

Germany’s economic growth was forecasted to be 0.5%, instead of 1.1% forecasted in February. Even with gradually better economic indicators from the EU, the commission still believed Germany’s economy was uncertain.

If the trade conflict between the US and China continues, the economic growth in Germany and EU will be negatively affected even further. The fact that the financial markets have been reacting so strongly of the trade conflict news shows that investors still are not certain about the global economy. The positive development in the stock markets at the beginning of 2019 was mostly because of the Fed’s change in monetary policy from gradually rising interest rate to a pause in further rate hikes.

Economic indicators from China had been improving. According to Citigroup Economic Surprise Index, which measures how much economic indicators surprise market’s expectations, Chinese economic indicators had been better than expectations since April. This might be thanks to Chinese government’s market interventions. The data of China’s balance of trade, released today, though was worse than expected.

Indices for 8th of May. Fear of prolonged trade conflict and hope of avoiding the conflict had been roaming the financial markets yesterday.
Dow: -1.8% (7th of May)
S&P 500: -1.7% (7th of May)
Nasdaq: -2% (7th of May)
Nikkei: -1.9%  (8th of May)
Chinese indices: -0.9% (8th of May)
STOXX Europe 600 Index: +0.15% (8th of May)

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