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Revising global growth forecasts

​​​​​​Today's news headlines:

  • ‘Donald Trump enters N. Korea and meets Kim Jong Un’. Donald Trump became the first sitting US President to set foot in the country, signalling the resumption of nuclear talks. The meeting was widely criticised as nothing more than a photo op, yet the President said teams from both sides would start working over the coming weeks. (Financial Times)
  • ‘Theresa May makes veiled attack on Boris Johnson's Brexit policy’. May took aim at Boris Johnson’s ‘do or die’ Brexit approach to leave the EU by October 31st. Johnson has said that he will take the UK out of the EU without a deal if the EU refuses to renegotiate the withdrawal agreement, removing the Irish backstop. (Guardian)

A truce, but no concrete progress

After meeting at the G-20 summit over the weekend, President Trump and Chinese leader Xi signalled a temporary truce in the current trade war. Details were scant, but the US has agreed to hold off on implementing tariffs on an additional $300bn of Chinese exports and will allow US companies to continue doing some business with Huawei. Although unconfirmed, Trump also announced that China has agreed to purchase large amounts of US agricultural goods.

The removal of immediate downside risks caused both the Japanese Yen and gold to fall, although it’s unclear whether this will translate into an overall rally in risk assets. The addition of a poor overnight reading in Chinese Manufacturing Purchasing Managers’ Index (PMI) data would indicate that current tariffs are having a lasting effect on China’s growth forecasts. Morgan Stanley reported that its outlook for global growth in 2019 and 2020 had been cut to 3.0% and 3.2% respectively, and any renewed escalation will raise the risk of a global recession.

Bottom line: Markets will be careful not to get sucked into the hype as a ‘truce’ doesn’t really suggest any clear sign of progress in getting a trade deal done. History also denotes that a rapid re-escalation can happen at any time when it comes to Trump and Xi.

Relief for the Eurozone could be getting close

This year, Europe has seen the rough-end of downside risks to global growth and trade tensions between the US and China. The protracted trade war has negatively affected the Eurozone’s exports and, as a by-product, German manufacturing—the currency bloc’s largest manufacturing industry. Over the weekend, Trump and Xi renewed hopes that a solution to the trade war is close as an agreement to re-open trade negotiations was made. A resolution would provide some much-needed relief for the Eurozone, potentially allowing the downside trend to reverse. This would also aid the European Central Bank (ECB) which is currently weighing up different policy tools to provide monetary stimulus to the region. Today, aggregate Eurozone Manufacturing PMI is expected to remain in contractionary territory, keeping the two-year downside trend running. However, we may see a bottoming out soon due to hopes of the trade war ending and the anticipation of central bank stimulus.

Bottom line: The Eurozone has suffered from reduced demand for exports due to the US-China trade war as well as slowing global growth, causing the Euro Index to trade 4.0% lower than its September high. Although investors find renewed hope in a trade war solution along with expected central bank stimulus, nothing is guaranteed. ECB policymakers have limited tools at their disposal, and previous attempts of trade negotiations have fallen through.


A strong open has benefitted the US Dollar this morning as markets reversed bets on the extent of Federal Reserve monetary policy easing. Further Dollar strength could push the pair down towards mid-June levels.


The recent downward trend for Sterling’s trade-weighted index has begun to shallow, indicating a bottoming out around December/January levels. The pair currently sits on a key level; a break below would see a targeting of January’s lows.


The pair dipped below the 200-day moving average this morning amid broad US Dollar strength. Failure to hold this level could point to the emergence of fresh selling pressure.