CM December DECEMBER 2018

INTERNATIONAL
TRADE
Monthly round-up of the latest stories
in global trade by Andrea Kirkby.
AFTER months of slightly
nervous trading, the stock
market finally gave way to its
jitters at the start of October.
The S&P 500 lost six percent
in a few days, giving up all but two percent
of its gains for the year, with more than one
commentator suggesting that the tenth
anniversary of the 2008 credit crunch could
see an even bigger crisis.
Certainly, the oil price increase together
with increasing interest rates look similar
to the backdrop to the credit crunch. So,
Stock market sell-off
does the increase in real estate prices since
the trough. But it's trade tensions that were
at the forefront of investors' minds as a
reason for the shock mini-crash; a new cold
war with China would have very serious
repercussions for world economies.
How serious? Don’t get too alarmed. I
saw a report that suggested Euler Hermes
had said global trade would fall 50 percent
by 2020. In fact, Euler Hermes says global
trade growth could fall 50 percent from four
percent to two percent; that's not quite the
same. There are also some technical reasons
for the stock market slump. Rising interest
rates have pushed up yields on bonds.
That's resulted in many investors dumping
their equity holdings to invest in bonds
which deliver the same return for less risk.
Meanwhile, a fund manager at BlackRock
says hedge funds are unwinding 'crowded'
positions – which while it's a reminder of
the risks inherent in the financial system,
isn't really a forecast for the world economy.
What to do? I think I saw the best advice
on a tea towel a few days ago. ‘Keep calm
and carry on.’
Dollar reverse…and changing trade patterns
THE dollar had been strengthening for
a good long while, but that's all over
now. The dollar has suddenly taken on
board the negative prospects for world trade
of a Trump-Xi standoff, resulting in a weeklong
slump against other currencies that
even a Fed rate hike couldn’t stop. While it's
a bit early to bet against the US, I wouldn't
mind betting Donald Trump’s trade war will
result in more damage to his own country
than to China.
It's interesting to see other countries
taking advantage of the situation to improve
their own trade with China. Brazil is
exporting more and more soybeans, and the
'stans' as well as Qatar and Kuwait, who are
focusing more attention on China trade.
It’s not a tectonic shift yet, but if the
standoff continues, it could bring China
more and more into the mainstream of
global trade and make it ever more present
in global supply chains. And those are
the kind of changes that aren't easy to
reverse.
>WATCH OUT FOR INFLATION
THE munificent Jeff Bezos has given Amazon
employees a generous pay rise. An act of pure
generosity? If you’re a cynic, you’d note that
the US labour market is getting very tight; add
two and two together, and you see Amazon
firing a shot across other employers’ bows to
make sure it gets the pick of the crop.
Tight labour markets and rising oil prices,
together with higher interest costs, haven't yet
put the squeeze on consumers or corporates
– but they’re likely to do so over the medium
term. The last couple of months’ inflation
figures from most major economies show
a slight fall in inflation, but don’t be fooled;
inflation is becoming even more of a risk. That
will push central banks to guard against it
by increasing interest rates – and that could
affect currencies, too.
The Recognised Standard / www.cicm.com / December 2018 / PAGE 28