Monthly Insights: Trade and currency tensions rise

Many of the assumptions about 2019 are changing, as the global economic landscape deteriorates amidst rising tensions over trade and currencies. Central banks are once again under pressure to provide a response, but increasingly it seems as if monetary policy is suffering from ‘diminishing returns’ while governments appear reluctant to expand fiscally. 

Global macro: A series of events are contributing to heightened uncertainty and renewed risk aversion, including the Fed’s cautious rate cut, re-escalating U.S. China trade tensions, and the increasing risk of an ugly Brexit.

GCC macro: While FDI inflows into the GCC have risen over the last year, the net FDI data shows that the Gulf remains a net exporter of FDI to the rest of the world.                       .                     

MENA macro: While global FDI/GDP will remain under pressure in 2019 following its sharp fall last year, we expect that North Africa will continue to hold up.

EM Focus: India is currently in the midst of prolonged slowdown as the tailwind of a stable government becomes infructuous and easy monetary policy fails to kick start investments. Ongoing concern over the health of the global economy is also weighing on India’s economy.

Interest Rates: Weakening global growth and safe haven bid on the back of the sudden collapse of the US-China trade talks pushed most government bond yields down.

Credit Markets: Risk off sentiment on the back of escalating trade conflicts caused credit spreads to widen. However, bond prices remained resilient as a result of the cushion provided by falling benchmark yields.

Currencies: The first interest rate cut in over ten years from the Federal Reserve last month still resulted in the dollar gaining ground, due to resilient U.S. data and because of its still relative attractiveness compared to other currencies.

Commodities: Gold has rallied to its highest level in six years as the US-China trade war worsens and central banks adopt a more dovish stance. These factors will help keep gold bid higher until the end of the year but won’t extend as much support to the rest of the precious metals complex.

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