Global trade friction not only affects the trend of financial markets, but also influences investors' risk appetite, and is also slowly affecting the real economy.
In the past May, the Purchasing Managers' Index (PMI) of major countries and regions in the world has fallen, which has increased the market's worries about the prospects for global economic growth. Not only Germany, Japan, the United Kingdom, Singapore and other countries have weak performance in manufacturing data, but the US manufacturing PMI has hit a new low in the past decade. According to IHS Markit, the global PMI has fallen below 50 in May and fell to 49.8.
The US economy, which has performed well in developed markets, is constantly accumulating “backwind†factors. After experiencing a high growth rate of 2.9% in 2018, all current forecasts are pointing to a slowdown in economic growth in 2019. The International Monetary Fund (IMF) recently predicted that the US economy will grow at a rate of 2.3% in 2019, the OECD is expected to be 2.8%, and analysts surveyed by FactSet expect 2.4%.
Analysts interviewed by 21st Century Business Herald believe that the US economy is facing downside risks, and the probability of falling into recession in the short term is small, but the annual economic growth rate is expected to exceed expectations, and the probability is very small. If the escalation of trade frictions causes the US economy to weaken and drag down financial markets, the Fed may take actions such as cutting interest rates. At present, the Fed has a certain interest rate cut.
Manufacturing PMI hits a new low in ten years
On June 3, local time, IHS Markit released the latest data. The final value of the US manufacturing PMI in May was 50.5, a new low since September 2009, lower than the initial value of 50.6, and significantly lower than the previous value of 52.6. Among them, the output sub-index is 50.7, setting a new low since June 2016; the new order index is 49.6, which has fallen into the shrinking range for the first time since August 2009.
IHS Markit economist Chris Williamson commented that the US manufacturing industry experienced the toughest month in the past decade in May, and the overall PMI fell to a new low since the worst of the global financial crisis. The slowdown in manufacturing expansion will further drag down the US economy.
On May 30, the revised data released by the US Department of Commerce showed that the actual gross domestic product (GDP) of the United States increased by 3.1% year-on-year in the first quarter of this year, and was revised down by 0.1 from the previously announced first estimate. The percentage point is still slightly above expectations.
Luo Zhenxing, director of the Economic Research Office of the American Academy of Social Sciences, said in an interview with the 21st Century Business Herald that an important reason for the US's first-quarter GDP to exceed expectations is that exports exceeded expectations, but in the case of escalating trade friction between China and the United States, subsequent exports will Hard to be immune to. He believes that the probability of a slowdown in the US economy in the second half of the year will be less likely to exceed economic expectations in 2019, but he also believes that the US economy "will not go bad, mainly depending on when trade frictions continue."
Trade friction has undoubtedly become one of the biggest uncertainties in global economic growth. Michael Wilson, chief US equity strategist at Morgan Stanley, analyzed a number of data on durable goods orders, capital expenditures and Markit PMI in April. In fact, the US economy has already been upgraded in May before the trade situation was renewed. Start to weaken. He believes that the US economic situation is weaker than most people think, and trade friction is not the only risk facing the current economy.
In the research report released on June 3, Michael Wilson discovered two "evidences" of economic slowdown: the Cass Freight Index, which reflects the volume of US cargo traffic, fell 3.5% year-on-year in April, and the data was Wall Street's Analysts are widely used as indicators to observe US economic trends; in the first quarter of this year, US retailers reported generally lower-than-expected earnings data, and most retailers expect full-year earnings to grow negative year-on-year.
The bond market is ringing the "recession" alarm
Judging from the above forecast data, the probability of a large US economic performance in 2019 is still not too bad, and the probability of falling into a recession risk in the short term is also relatively low. However, if it is reflected in the financial market, investors' concerns about the economic outlook are obviously more serious.
In the past May, the three major indexes of the US stock market changed their rebound momentum at the beginning of the year and suffered heavy losses in the shadow of the escalation of trade friction. The Dow Jones Industrial Average fell 6.69% in one month, and the S&P 500 index fell 6.58%. The gram index fell 7.93%. At the same time, driven by economic worries and risk aversion, the influx of funds into the US Treasury bond market led to the continued decline in long-end interest rates. The March and 10-year US Treasury yields reappeared, and the degree of inversion was the highest in 2007. , releasing a signal of economic recession.
So, what is the probability of a recession? On June 3, the National Business Economic Association released the latest survey report. Although economists believe that the US economy is less risky in the short term, the possibility of a recession next year has risen sharply. The report shows that the probability of a recession in 2019 is 15%, but it will rise to 60% by the end of 2020. In the three-month survey, the probability of a recession before the end of 2020 was only 35%.
The survey respondents were 53 economists and were seen as a “barometer†of the US business community's forecast of economic trends. The survey predicts that US GDP growth will fall from 2.9% in 2018 to 2.6% this year and will further drop to 2.1% in 2020.
About one-third of respondents believe that the recession will begin in the middle of next year. In addition, about 56% of respondents said that the biggest risk facing the US economy this year is the rise of trade protectionism. About 88% of respondents pointed out that US trade policy and counterattacks from other countries are the reason for lowering US economic growth expectations.
The market expects to cut interest rates twice during the year
Against the background of the economic outlook, the market began to hope for the easing policy of the central bank. At the moment, the market's expectation of the Fed's interest rate cut has risen sharply. It is expected that interest rates will be cut twice this year, 25 basis points each, and it is likely to continue to cut interest rates next year. Trump, who has long called for the Fed to cut interest rates, may have to fulfill his wishes.
On June 3, “Federal Fed Dove†St. Louis Fed President James Bullard said that due to global trade tensions and weak US inflation, the risk of economic growth has risen, and the Fed’s interest rate cut “may soon be guaranteed†. At the same time, he believes that the inversion of the March and 10-year US Treasury yield curves also supports a rate cut.
Last Thursday, Fed Vice Chairman Richard Clarida also released the "doves" speech, saying that if the next data shows that inflation continues to be below the target level of 2%, or the overall economic and financial development has substantial downside risks, the Fed will consider these factors. To assess monetary policy.
According to market analysis, Fed officials began to discuss interest rate cuts, which may indicate that the tone has changed compared with the recent emphasis on policy “patienceâ€. Currently, the Fed still maintains interest rates unchanged between 2.25% and 2.5%. Next, on Tuesday and Wednesday local time, the Fed will hold a hearing on monetary policy strategies, tools and communication practices. Two weeks later, the market will usher in the June FOMC meeting. How the Fed considers the interest rate policy and how to look at the current economic situation will become the focus of the market.
Wu Jingjing, head of investment strategy at Citibank's personal finance bank's wealth management department, told 21st Century Business Herald that the Fed may take action to cut interest rates, such as the escalation of trade frictions and ultimately the weak US economy and the financial environment, but she believes that The Fed’s policy adjustment is more likely to be adjusted to the situation. It is unlikely that the policy will be adjusted before the negative factors appear, and it is difficult to hedge the trade policy risks that are inherently uncertain.
Wu Jingjing pointed out that the current inflation rate in the United States is still in a lower range. If the tariffs lead to the recent rise in consumer prices, the Fed may regard it as a short-term rather than a long-term state, and the Fed is unlikely to tighten monetary policy adjustments. If the trade dispute quickly achieves a positive breakthrough, the market interest rate may also rise rapidly. However, the current US strategy of broadening the trade front reduces the possibility of a breakthrough in trade negotiations in the short term.
Luo Zhenxing emphasized to reporters that the Fed has its own decision-making system, and the Trump administration’s remarks have little effect on it. He believes that the global economic growth is slowing down, trade friction is uncertain, and domestic inflation has not reached the Fed’s 2% target. Under this circumstance, the Fed will maintain a high probability of raising interest rates this year, and if the economy next year The situation is not good, the Fed has room for interest rate cuts.
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