Slow Pace Trade Talk, GDP Cuts, Bank Slumps! Has the World Economy Worsened as of Late?

On Tuesday, July 16, 2019, the U.S. President Donald Trump said that there’s still a long way to go to reach a deal with China while threatening to impose tariffs on another $325 billion of Chinese goods.

The two countries had agreed on a truce after a private discussion at G20 summit in Osaka last month. Besides several phone calls, there has yet to be any solid agreement or a schedule of a meeting between delegates at all.

Meanwhile, China has also added Zhong Shan, Chinese commerce minister, to its negotiating team. Zhong was present at last month’s G-20 summit and took part in a telephone conversation with U.S. representatives last week. It has been reported that Zhong is seen by many officials in Washington as a hard-liner.

 

Dow Jones and S&P 500 had just broken their all-time highs a week ago, but has the economy really moved at a faster pace as of late? The International Monetary Fund (IMF) had just cut Singapore’s GDP growth from 2.3% to 2.0% earlier while cutting global growth from 3.5% to 3.3% and lowering global trade volume estimate from 4% to 3.4%.

China’s GDP grew at 6.2% in the second quarter of 2019, the slowest quarterly growth rate since 1992 (in 27 years) and down from 6.4% in the first quarter of 2019.

 

While investors are waiting for a Fed’s rate cut, J.P. Morgan Chase, Wells Fargo, and Goldman Sachs said that it could be a near-term impact to the profit as the spread between the rate banks collect from borrowers and the rate they have to pay out to savers would shrink.

If that happens, a huge fund inflow could flush into Thailand and strengthen Thai baht even more. Bank of Thailand (BOT) stated on Wednesday that the current interest rates are quite low when compared to its peers in the regional, thus, a cut of benchmark rate may not have much impact. BOT also stated its concern over a strong baht, saying that it would keep monitoring in fear of speculation.

If BOT decides to make a cut, will there be any near-term impact to the bank sectors like what will happen to J.P. Morgan Chase, Wells Fargo and Goldman Sachs?

 

Because of the trade war (mainly), world GDP is slumping, causing an economic slowdown. Fed could do nothing but to cut interest rate. The banks, who would have a direct effect from the rate cut, would tumble. If the U.S. and China could not make an agreement, a chance to see the light of day is very slim.