Kristal Weekly Feed I 14th October 2019

All you need to know, in under 1 minute.
Here’s a concise report on what made headlines in the global market last week.

Positives

• Dow has a good week; markets breathe a sigh amid trade war concerns
• Vietnam’s growth estimate for the year may beat expectations
• Singapore beats US to become world’s most competitive economy
• Pound jumps to record highs as Brexit looms closer

Negatives

•  US banks expected to have a sour earnings week
• Indian banks can face fresh challenges from unpaid loans in the housing sector

Now, for more detail.

Positives

1. Dow has a good week; markets breathe a sigh amid trade war concerns

What You Should Know

The ‘mini trade deal’, as investors are calling it, has proved beneficial markets. Proof: the Dow Jones Industrial Average surged 319.92 points, or 1.2% to close at 26,816.59, with Apple being the big winner of the week. The S&P 500 rose 1.1% to close at 2,970.27, while the Nasdaq Composite jumped 1.3% to end the week at 8,057.04.

What You Should Look Out For

The stock rally has helped Dow and S&P break a three-week downward slump. As President Trump told the Oval Office, phase one of the trade deal will be finalised over the next three weeks. As part of this agreement, China will purchase between $40 – $50 billion of U.S. agricultural products, and agreements on foreign-exchange issues will also be reached. In exchange, the U.S. will delay the tariff hikes that were set to take effect from Tuesday. This is definitely not the end of the trade war; but a firm step in the right direction nonetheless. More good news on this front will surely help buoy the markets in the coming days.

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2. Vietnam’s growth estimate for the year may beat expectations

What You Should Know

According to President Trong, Vietnam’s economic expansion for this year may “exceed the higher end of an official estimate”. It is estimated that the country will end 2019 with a growth rate of 6.8% or higher, and a GDP of $266 billion.

What You Should Look Out For

The government data says that Vietnam’s inflation rate for 2019 will be much lower than what the National Assembly had initially projected. The state also said that the budget deficit is projected at 3.4% of GDP, while public debt is expected to fall to 55% of GDP – which is lower than the initial targets set by the assembly.

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3. Singapore beats US to become world’s most competitive economy

What You Should Know

The World Economic Forum’s report on the most competitive economies in the world list Singapore as numero uno, with the US coming in second. The report, which was published on Wednesday, measures countries on the basis of “macroeconomic stability, infrastructure, the labor market and innovation capability”. Singapore came in tops on all counts, thus being able to push last year’s winner and global economic leader – US – down the ranks.

What You Should Look Out For

The trade war has played an important role in Singapore’s rise in global rankings. However, much of the trade in the APAC region is heavily dependent on China; Singapore included. In fact, Singapore had earlier slashed its yearly growth forecasts and readied for the slowest economic year since 2009. So, while the rankings do give us a sense of the growth potential for the island country, they are also synonymous with the ramifications of the Trump-China tussle.

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4. Pound jumps to record highs as Brexit looms closer

What You Should Know

The pound had a good end to the market week as it ended on an all-time high for the second consecutive day on Friday. Hopes that a Brexit deal would be finalised soon pushed the currency up to $1.2706, up from Thursday’s $1.2444. This is the highest that the GBP has seen since Boris Johnson stepped into 10 Downing Street.

What You Should Look Out For

Recent news from the EU has been “constructive”, and negotiations have been intensified. However, some experts say that a deal is hard to ink in its entirety by the October 31st deadline. Most probably, we are looking at an extension of Article 50 deadline.

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Negatives

1. US banks expected to have a sour earnings week

What You Should Know

Low interest rates might mean that banks in the U.S. kick off the earnings season on a low note next week. Experts believe that falling interest rates may have pressured net interest margins enough to cause a decline in year-over-year earnings. If so, this would be the first time in three years that the US banking sector will see a dip in Y-o-Y growth.

What You Should Look Out For

On Tuesday, third quarter profit reports from Citigroup Inc, Wells Fargo and Co, JPMorgan Chase & Co, and Goldman Sachs will be made public. Bank of America will share its reports on Wednesday. It is expected that the biggest banks will report a probable 1.2% decline in third-quarter earnings, with slight revenue increase of up to 0.9%. This week, bank investors will be looking out for “executive reassurance on the net interest margin outlook” and their expected ability to mitigate weakness, while investors would want to know more about slowing US economic growth and its repercussions on debt repayment.

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2. Indian banks can face fresh challenges from unpaid loans in the housing sector

What You Should Know

India has a shadow lending economy which allows construction firms to acquire easy loans. However, a slump in the residential property market may make it harder for these loans to be repaid, causing heartache for the mainstream banks which finance lending firms or have invested in their bonds.

What You Should Look Out For

Fitch Rating’s India division estimates that about $10 million worth of housing loans will be due for repayment in the first half of 2020. Earlier this year, the Indian financial authorities, including the central bank and government, had said that bad loans – which totals more than $150 billion – are on the decline for the first time in four years after a recent debt crisis. However, the number of Indian property developers falling into bankruptcy has also doubled during the past nine months. This puts additional pressure on non-banking finance companies (NBFCs) which form the core of the shadow lending economy. State-owned banks received cash infusions recently which should help them in case of a crisis ballooning from the housing sector. It is unclear what the privately owned banks will do in such a situation.

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