08|27|2019

Global Economy at Odds | August 23, 2019

photo of owner Jay Roque Financial Services-time and money icon Financial Future Services Monument Colorado AUTHOR: Jason J. Roque, CFP®, APMA®

TITLE:     Investment Adviser Rep – CCO

TAGS:      TRADE, STOCKS, GDP, INTEREST RATES

 

The global economy is currently at odds with itself. Last week US markets retracted for the fourth straight week while China, Japan, and Europe all advanced. Why?

Europe

The German economy is preparing for a recession as GDP fell last quarter and growth expectations have fallen for the 3rd quarter. European markets advanced last week as monetary stimulus is expected from the European Central Bank and fiscal stimulus is expected from Germany.

Japan

The Japanese economy registered their 3rd consecutive quarter of GDP gains, growing at 1.8%. Exports to China have fallen sharply but are being replaced with exports to the US and Europe following a trade deal reach a few months ago. The strong economic data out of Japan supported market strength this past week.

China

Equity markets showed strength across the week as China announced creation of a key interest rate, which will be the future measure for lending. The rate fell across the week raising hopes of increased demand in the lending markets. Additionally, this brought hope of China being more of a free market friendly environment as this is a free market mechanism.

The US

The release of the Federal Reserve Board’s July minutes made it clear they do not intend to further cut rates. This was in line with the post meeting briefing, but a reaffirmation of the fact did not help matters. Additionally, the US threatened to levy more tariffs against China. It also threatened to use an obscure executive power allowing him to prevent US businesses from working with Chinese companies. Thursday saw a revisit of a yield curve inversion briefly. Equity markets ebbed and flowed across the week, however ended down on trade war and recession concerns.

Conclusion

Economic indicators are softening but still point to expansion in the US. The uncertainty around the trade war and monetary support of the current expansion cause the markets to be turbulent. Stability for a few weeks would be welcome heading into September, a historically turbulent month.

 

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