IMF sends another warning as Brexit fails again to pass

Oil lower on fears of US crude inventory rise

GReport prepared by NBK

lobal central banks are wasting scarce ammunition in an attempt to compensate for the waning global economy which is at its weakest since the deep recession, the International Monetary Fund has warned. In another downbeat assessment, global growth is forecast at 3.0% for 2019 – a 0.3% downgrade from its April outlook. Over the past year, broad based weakening has been seen affecting major economies such as the US and especially the euro area and smaller Asian advanced economies. The weakness is mainly driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and persistent trade policy uncertainty hindering investment and demand. The IMF warned that with central banks having to spend what little ammunition they have to offset policy mistakes, they may have little left when the economy is in a tougher spot.

Yet, growth is projected to pick up to 3.4% in 2020 as an improvement in economic performance can be noted in a number of emerging markets in Latin America, the Middle East, and countries in Europe that are currently facing strains. However in its official report, the IMF emphasized as follows: “with uncertainty about prospects for several of these countries, a projected slowdown in China and the United States, and prominent downside risks, a much more subdued pace of global activity could well materialize. To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed”.

United States

US retail sales posted their first decline in seven months, adding to the narrative of weaker consumer sentiment which has been the backbone of the US economy. The value of overall sales fell 0.3% in September from the 0.6% increase seen in the prior month according to the Commerce Department. Looking at core retail sales, the figure also contracted slightly in September by -0.1% from prior growth of +0.2%. We can now see that the manufacturing slowdown is gradually spilling into consumer sentiment. Despite mostly solid income growth and favorable fundamentals for consumers, people have grown increasingly cautious due to daunting headlines regarding the trade war with China. Still, the US economy remains vigorous.

The data bolsters the case for a third straight interest rate cut by the Federal Reserve. Weak business investment and manufacturing, along with the lingering trade war and weaker consumption are factors which may all risk the nation’s longest economic expansion on record, also complicating matters for President Donald Trump who faces re-election prospects in 2020.

Equities in the US climbed towards all-time highs amid mostly positive earnings reports and news that Britain negotiations are nearing an end. Overall, more than 78% of the S&P 500 index companies reported earnings that topped expectations. The S&P 500 fluctuated around the 3,000 level (near its record high of 3,021) while stocks in Europe rose slightly. Strong earnings from UnitedHealth Group, JPMorgan Chase and other companies helped power the broad gains and notched investor sentiment higher.

Europe & UK

An agreement on a new Brexit deal was announced by EU and UK negotiators hours before the start of an EU leader’s summit on Thursday. The main changes from the previous one concern the controversial Northern Irish Backstop which Johnson has agreed to scrap. Under the new deal, Northern Ireland will be in the UK custom territory “forever” but will have a “special arrangement”: there will be no hard border on Ireland. Though EU leaders unanimously endorsed it on Thursday, it still faced opposition in Britain’s Parliament which has so far voted down three previous Brexit deals.

On Saturday, the decision was postponed by Members of Parliament and the Letwin amendment passed with 322 votes in favor and 306 against. The amendment withholds approval of Johnson’s deal until the legislation to enact it is passed. Moving ahead, Johnson is required by law to request an extension beyond the Oct 31 date from the EU, however he still suggested he would not negotiate with the EU on a delay and would get Brexit done before the deadline.

The announcement of a deal on Thursday jolted the Sterling higher. However, the Democratic Unionist Party’s rejection of the deal and uncertainty about what happens in case parliament fails to pass it limited the pound’s gains. The GBP/USD surged to 1.2989, adding an astounding 200 pips on the news of an agreement. Many other major pairs were taken away by the optimism: EUR/USD surged to 1.1172 and held on to those gains while the AUD/USD rose to a one-month high also due to optimistic employment data.

Consumer prices in the UK rose 1.7% in September - lower than the 1.8% forecasted and at its lowest since late 2016. Core inflation, which excludes volatile items, increased from 1.5% to 1.7%. Inflation has continued supporting consumer spending power as Brexit overwhelmingly clouds the economic outlook. “Motor fuel and second-hand car prices fell, but were offset by price increases for furniture, household appliances and hotel rooms,” said Mike Hardie, ONS head of inflation. Growth in average UK house prices jumped to 1.3% in the year to August, compared with 0.8% in the year to July. The Bank of England’s target for inflation remains at 2.0%.

Continued on Page 22 KUWAIT CITY, Oct 20: The ten-day countdown has officially begun, marking the last few days customers can open, or deposit into, an Al Danah account and be eligible for the annual draw. This year’s annual Al Danah draw will take place on January 16, 2020 and will culminate in the announcement of the 2019 Al Danah Millionaire, who will receive the grand prize of one million Kuwaiti Dinars in one full payment.

Gulf Bank’s Al Danah account is open to both Kuwaiti and non-Kuwaiti residents of Kuwait. A minimum of KD 200 is required to open an account and the same amount must be maintained for customers to be eligible for the upcoming Al Danah draws. If the Al Danah account balance falls below KD 200 at any given time, a KD 2 fee will be charged to the account monthly until the minimum balance is met. Customers who open an account and/or deposit more will enter the daily draw within two days. To participate in this year’s quarterly and annual draws, customers must keep the balance required by the Al Danah account. Terms and conditions apply.

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