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Investors Must Stay Prudent as Global Economic Uncertainty Abounds

Investors Must Stay Prudent as Global Economic Uncertainty Abounds
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Monday, 21 October 2019 01:19 PM Current | Bio | Archive

The IMF and World Bank's 2019 Annual Meetings of finance ministers and bank governors, in Washington have concluded with the normal platitudes that one would expect on such an occasion.

The communiqué of the 40th Meeting of the IMFC states, among other things:

“The global economy is projected to grow by about 3 percent this year, its lowest level since 2008–09 and a 0.3 percentage point downgrade from the April 2019 World Economic Outlook. Growth is projected to pick up next year, but the outlook is highly uncertain and subject to elevated downside risks. These include trade tensions, policy uncertainty, and geopolitical risks, against a backdrop of limited policy space, high and rising debt levels, and heightened financial vulnerabilities. We will employ all appropriate policy tools, individually and collectively, to mitigate risks, enhance resilience, and shore up growth to benefit all. Available fiscal space should be used to support demand as needed.”

During the event, there was:

  • A lot of concern voiced about global trade because there are risks to global trade.
  • A lot of concern voiced about global growth because there are risks to global growth.
  • A lot of attention paid to the IMF’s growth forecast.

IMF Managing Director Kristalina Georgieva said that officials from both the United States and China both “commented positively” on their recent trade discussions.

For investors, this would be assuring, except there is the fact that we have heard this language from both sides before.

It would be harder to describe the current situation as “progress”.

President Donald Trump had outlined elements of a potential “Phase 1” deal on October 11 and informed on the same occasion that the U.S. would not move forward with another round of tariff increases against roughly $250 billion in Chinese goods that had been set to take effect on October 15.

At the same time, U.S. Trade Representative Robert Lighthizer said no decision had been made yet on whether to suspend another wave of tariffs scheduled to take effect on December 15, Politico reported.

In the meantime in Europe, the interminably EU-U.K. divorce process continues. This is not news.

Over the weekend, U.K. Prime Minister Boris Johnson lost a vote, the ninth, in the House of Commons, which is the lower house of the Parliament of the United Kingdom.

No, this is not news.

The U.K. government will now attempt to win a vote which would be used either:

  • By voting on the “disguised” version of former U.K. Prime Minister Theresa May’ withdrawal agreement today, or
  • By voting on the legislation required to implement the “disguised” version of May’. withdrawal agreement tomorrow.

People living in the real world seem having given up paying attention.

In my opinion, investors should better remain prudent before taking positions in the British pound and/or British equities and wait until we’ll get a somewhat clearer view on the whole extremely complex situation.

In the meantime, sterling holds towards the top of recent range at start of the new week. Last week, Sterling rose sharply against both the U.S. Dollar and the Euro to close to five-month highs.

The Sunday Times reported that the European Union will delay Brexit until February 2020 if Johnson is unable to get his deal past parliament this week. The delay would be “fungible,” meaning that Britain could leave earlier, on November 1 or 15, December or January, if his deal is ratified before the extension ends, the newspaper said, citing diplomatic sources.

Besides all that, I still consider the recent somewhat weaker dollar not as the start of the long-awaited downward trend of the dollar yet.

As long as all these “uncertainties” about a “real” trade deal with China, Brexit, the Fed’s new permanent open market operations (POMO) program, slowing global growth, etc., stay in place, I think it’s still too early to go underweight in, for example, safe haven currencies like the U.S. dollar, the Japanese yen and the Swiss franc.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
As long as all these “uncertainties” about various global issues linger, I think it’s still too early to go underweight in, for example, safe haven currencies like the U.S. dollar, the Japanese yen and the Swiss franc.
investors, world bank, imf, dollar
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2019-19-21
Monday, 21 October 2019 01:19 PM
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