Monday, August 26, 2019 /03:00PM / By United
Capital / Header Image Credit: Foreign Policy
During the previous week, sentiments in the global economy danced to different tunes, as geopolitical tensions and monetary policy signals continued to drive sentiments. The trade dispute between the U.S and China took a new turn, with China issuing an additional 5%-10% tariff on $75 million worth of the US imports, mostly targeted at the United States' agricultural goods and reinstituting tariffs on auto imports. Hence, major market indices nosedived on the back of this development, as the new action puts at risk the outlook and trajectory of an already dissipating global growth. Meanwhile, the Fed Chairman also highlighted that trade tensions pose a risk to the U.S. economy and the global economy at large at the renowned Jackson Hole Economic Symposium. While he mentioned that the Fed will continue to act as appropriate to sustain the economic expansion, concerns on limited capabilities of monetary policy tools to shield economic volatility also came to fore.
Despite the trend of increasing trade independence, the United Kingdom and South Korea signed a free trade agreement, with the ratification procedures to be completed before the BREXIT deadline. With South Korea being one of its major trade partners, the agreement could provide a form of cushion for the United Kingdom, given the likelihood of a no-deal BREXIT. Elsewhere, we saw continued dovish policy stances across central banks, as Indonesia (25bps to 5.5%), Paraguay (25bps to 4.5%) and Egypt (150bps to 14.25%) lowered their key policy rates.
Oil prices came under fire this week, torn apart by China's inclusion of U.S. crude oil imports in the escalating trade war, and a decrease in U.S crude inventories shoring the price. This week, we expect markets to absorb outcomes from the G7 summit, as core global issues are discussed, and Trump's reaction to China's newly dealt cards.