After a positive start to the week, Asian equities fell today amid rising concerns over the global economic outlook. The market is currently being driven by the daily news feed. An example of this, is the caution observed over the latest revised growth estimates from the IMF. The fund lowered its growth expectation for the global economy by 0.2% for 2019 and 0.1% for 2020 to 3.5% and 3.6% respectively. This was the second downturn revision in three months, and we can still see further downgrades in near future if trade tensions escalate, the UK exits with a no-deal from the EU, or China’s economic growth drops more sharply.
Updates received from U.S.–China trade talks were not encouraging either. According to a Bloomberg report, the negotiations over intellectual property theft have gone nowhere. With only eight days left before China’s Vice Premier Liu He visits Washington to resume trade negotiations, any headlines related to trade talks will be market-moving.
Overall, we think the relief rally in global equity markets will be tested this week especially with earnings season kicking into higher gear with companies like Johnson & Johnson, IBM, United Technologies, and several airlines scheduled to post their Q4 results.
In currency markets, the Australian and New Zealand Dollars are feeling most of the pressure as concerns over the global economy and China’s economic outlook grows. However, it remains to be seen what new measures China will take in order to boost sentiment.
British Prime Minister Theresa May unveiled her Brexit Plan B yesterday, and as expected it looked a lot like Plan A. The fate of her alternative plan seems similar to the previous one and will not likely pass through the parliament. EU leaders also did not show a willingness to negotiate for a new deal. Despite these facts, Sterling held steady against the Dollar. Investors seem like they are still ruling out the possibility of a hard Brexit and believe the current dysfunction in UK politics will lead to at least an extension of Article 50, and possibly a new referendum.
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