SINGAPORE (Oct 21): Although the ongoing trade war between the US and China has offered glimpses of optimism, the global economy remains largely fractured and shows signs of sinking deeper into the doldrums.
On Oct 15, the International Monetary Fund said it expected global growth to slow to the weakest pace since the 2008 global financial crisis, and noted that this would translate into a significant drop from 2017/18 levels. To make matters worse, this is the third time this year that the IMF has slashed its growth projections. In fact, the IMF expects slower growth in 90% of the world.
“With uncertainty about prospects for several of these countries, a projected slowdown in China and the US, and prominent downside risks, a much more subdued pace of global activity could well materialise,” says IMF chief economist Gita Gopinath.
“To keep the global economy from falling into a recession, policymakers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions and reduce domestic policy uncertainty,” she adds.
While talks of US-China trade talks and meetings have raised hopes for a resolution to the ongoing tensions, there are now signs that hostility between both parties could be renewed.
On Oct 17, US State Department officials mandated that Chinese diplomats in the US must now give advance notice of any meetings with state, local and municipal officials, as well as at educational and research institutions, and seek permission first. According to the officials, the move was an effort to “add reciprocity” to the way US diplomats are treated in China.
Trump has since shifted his attention to Turkey, hitting it with sanctions just a week after appearing to give capital city Ankara the go-ahead to launch its longplanned invasion of Syria.
On Oct 15, he announced plans to re-impose steel tariffs of 50% on Turkey and halt trade negotiations with the country immediately.
On Oct 17, Trump hit the headlines again for what was termed an “extraordinary letter” to Turkish President Recep Tayyip Erdogan, in which sanctions were cited to be “a little sample” of what could be in store.
“History will look upon you favourably if you get this done the right and humane way,” Trump wrote to Erdogan. “It will look upon you forever as the devil if good things don’t happen. Don’t be a tough guy. Don’t be a fool!”
Although this new conflict might pale in comparison to the US-China trade war, experts caution that Trump’s decision risks war between a NATO ally and the US-backed partner in Syria, which could in turn bring about a new conflict altogether.
Gold market participants continue to watch macroeconomic events closely. This week, traders appeared to have generally refrained from making any substantial bets owing to the absence of developments on the Sino-US trade war front and Brexit negotiations. Gold prices eased on Oct 17, and held below US$1,490 per ounce. “Downbeat US economic data dimmed global trade optimism [owing to] the Phase 1 US-China trade truce as markets turn wary over lacklustre conditions in consumer spending,” reads a commentary by Phillip Futures.
Oil was traded in a tight range for the week, gaining support because of factors such as a weaker US dollar, and signs that The Organization of the Petroleum Exporting Countries and other allied producers could curb output in December. “Oil prices continue to illustrate limited upside potential amid broad-based global economic weakness in the current term,” says Phillip Futures. In the US, the American Petroleum Institute reported a strong build of 10.45 million barrels in crude oil inventories while gasoline stock decreased by 0.9 million barrels for the week ending Oct 11.
On the local front, the US-China trade dispute has caused the Singapore economy to falter. According to Jeffrey Halley, a senior market analyst at Oanda, recent Singapore data does underscore that the trade war is the “single most crucial macroeconomic factor for the world’s economic health”.
“As an open trading economy, the city state is a bellwether for global trade, and these numbers and their implications do not make for pretty reading,” says Halley, noting that the Monetary Authority of Singapore has eased its monetary policy for the first time in three years. The central bank has left the window open for another such shift if global growth continues to weaken next year.
Stocks to watch
Catalist-listed oilfield services firm Rex International was heavily traded during the week. Its share price surged 12.66%, or one cent, to 8.9 cents on Oct 16 following the announcement of an oil and gas discovery in the Norwegian Sea on Wednesday morning. Before market hours, Rex announced that a discovery had been made from the drilling of exploration and appraisal wells in the Shrek prospect in the PL838 licence. Lime Petroleum AS, a subsidiary of Rex, holds a 30% stake in the PL838 licence. Shares in Rex International closed 0.3 cent, or 3.3%, lower at 8.8 cents on Oct 17.
Mapletree Commercial Trust was another actively traded stock. The REIT had launched an equity fundraising on Oct 16 to pay for its $1.58 billion acquisition of Mapletree Business City (Phase 2). The fundraising comprises an offering of a total of 406.5 million new units through a private placement of 200.9 million new units at an issue price of between $2.24 and $2.28 each, as well as a preferential offering of 205.6 million new units on the basis of 71 new units for every 1,000 existing units in the REIT, at an issue price of between $2.20 and $2.24 each. On Oct 17, units in MCT closed four cents, or 1.71%, higher at $2.38.
The week ahead
On Oct 23, Singapore will be releasing its Consumer Price Index for September. This metric measures the change in the price of goods and services from the perspective of the consumer. On Oct 26, Singapore will also release its Industrial Production figures, which measure the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities.
