IMF Reduces Global Growth Outlook as Trade Fears Persist

 

IMF less bullish on global growth. In a move that is sure to be widely discussed at this week’s World Economic Forum in Davos, the International Monetary Fund trimmed its outlook for 2019 global economic growth from 3.7% to 3.5%. Much of the reduction was attributed to Europe and Asia, where weak demand and industrial production (Europe) and threats of escalating trade wars (Asia) continue to hamper forecasts. In support of the latter, yesterday China reported that its economy grew last year at the slowest annual pace (+6.6%) in 30 years. The report from the world’s second-largest economy specifically underscored struggling manufacturing sector, which brought out the crude oil bears during today’s session with the fear of further slumping demand. Both WTI and Brent crude futures declined 2.9% on the day.

 

 

Escalating US-China trade fears add to risk asset selloff. A flight to safe-haven assets picked up steam today after a report from the Financial Times stated that the Trump administration was not willing to hold preparatory talks with China ahead of next week’s scheduled trade negotiations (Jan.30-31). The article went as far as to say the prep meeting had been on the books and was cancelled. It is worth noting, however, that White House economic adviser Larry Kudlow denied such reports and stated that “the story is not true.” Regardless, US equities experienced their second worst trading day of the new year and broke a 4-day winning streak, as the tech-heavy Nasdaq paced major indices lower (-1.91%). A belly-led rally in Treasurys saw yields/swap rates 2-6bps lower across the curve, further inverting the spread between LIBOR and 5-7 year swap rates.

 

 

Home sales continue to struggle. There was no support to be found by way of key economic data, as existing home sales in the US fell to their lowest levels in nearly four years. In the final month of 2018, sales of previously-owned homes slowed to a seasonally adjusted pace of 4.99 million, down 6.4% from November 2018 and missing forecasts of a 1.5% decline. Compared to a year earlier, existing home sales tumbled 10.3%, while the median sale price increased 2.9% (smallest YoY rise since 2012). With rates trending lower as of late, the lull in home sales may present a welcomed opportunity for prospective buyers who were previously priced out of the market.