KINGSTON, NY, 14 NOVEMBER 2018—The signals are clear. The warning shots have been fired. Equity markets across the globe have lost trillions as investors increasingly worry about the two-punch strike of slowing economic growth and rising interest rates.
- "World Economic Climate Deteriorates Further." - ifo Institute.
- "Eurobond yields rise after IMF debt default warning volatility."
- "Global growth is slowing, and markets need to pay attention." - IMF
- "Japan's Economy Contracted in the Last Quarter."
- "Eurozone Economy Seen Cooling." - Wall Street Journal
- "Looming maturity of Chinese property debt triggers default fear." - Financial Times
The U.S. Federal Reserve appears on track to raise rates a fourth time this year in December. As we have long noted, with some $250 trillion in global debt, much of it dollar based, as the dollar grows stronger and global currencies get weaker, the cost burden of servicing that debt grows heavier.
And as interest rate rise and currencies grow weaker, so too is economic growth slowing in both Emerging Market and developed nations.
In China, the world's second largest economy, Gross Domestic Product growth has slowed to Panic of '08 levels and the Shanghai Composite Index is down some 30 percent while Asia's main equity gauge has also sunk into bear territory with it stocks losing some $5 trillion this year.
Across European markets, the FTSE All World index ended October down over 7 percent, its worst performance since the peak of the 2012 eurozone crisis.
In the U.S., the Nasdaq slumped 9 percent in October, its biggest drop since the Panic of '08. And the S&P 500 lost 7 percent, its worst month since September 2011.
Despite initial market optimism following the America's midterm elections, on Monday the Dow plunged some 600 points and lost another 100 points on Tuesday. While U.S equities are rebounding today on news of lower than expected inflation rates, which would suggest a less aggressive interest rate increase policy by the Federal Reserve, since the decrease was marginal, we forecast it will not affect Fed policy and downward market pressure on equities and real estate will continue.
Among the leading indicators of a global economic slowdown are diving oil prices which are on their longest losing streak on record. Brent Crude has dropped more than $20 to $66 from its 2018 high, declining 25 percent this year.
In part, the slide is due to President Trump's softening of the oil embargo he threatened against Iran. The other, more relevant factor is supply and demand: There is more supply than demand because economic growth is slowing worldwide.
TREND FORECAST: While oil prices are trending lower, should tensions in the Middle East escalate and oil spikes above $100 a barrel, it will shock both equities and economies worldwide.
Moreover, with signs the Fed will continue to raise rates, not only will higher rates push currencies lower, since oil is dollar based it will cost more to purchase oil, and as evidenced, the interest rate increases will also push equities and real estate prices lower across the globe.
We still maintain gold prices are near its bottom at $1,200 and remains a safe haven asset.