Market Watch I Kristal Weekly Feed I 4th November 2019
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Kristal Weekly Feed | 4th November 2019

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In a hurry? Here’s a short summary of some major global headlines over the last week.
Positives

  • Federal Reserve cuts rates once again
  • U.S. job numbers beat expectations

Negatives

  • Warning of a slowdown in global automobile markets
  • Rising risky corporate debt causes concerns in IMF circles

 

Now, for more detail.

 

Positives

1. Federal Reserve cuts rates once again

What You Should Know

The US Central Bank has made the decision to cut interest rates again in order to protect the economy from a slowdown and the impact of the US-China Trade War. The Federal Reserve has made a cut of 0.25 points, which is the third rate cut since July. This was an expected move and eight out of ten policymakers voted in favour of the rate cut.

What You Should Look Out For

US President Donald Trump has given the responsibility of raising the growth rate to the Fed by reducing interest rates providing lower borrowing costs. Mr. Powell, the chairman, said that the previous rate cuts have already shown a positive impact on sectors like housing, but the full impact of these decisions will be seen in the long term. The Fed also stated that there would be no more rate cuts unless some unexpected crisis occurs.

However, as per Dr. Kerstin Braun of the Stenn Group believes that the uncertainties due to the Trade War needs to be tackled along with lowering rates to propel investment and fuel infrastructure and innovation.

Suggested Reading

 

2. U.S. job numbers beat expectations

What You Should Know

October saw a rise in the number of jobs created in the U.S. despite the contraction in manufacturing activities. A predicted number of 75,000 jobs was largely outnumbered by 128,000 new jobs in October. This is considered positive as the rise in jobs has been known to raise confidence levels in the economy as a whole.

Wages have also grown by 0.2% in October and have seen a rise as compared to the previous year as well.

What You Should Look Out For

The rise in jobs has caused the S&P500 and Nasdaq indices to reach new highs. The Dow Jones rose 301.13 points while the S&P500 touched a new high at 3066.91. The rise in jobs has been a major contributor in this sharp rise and have stirred a positive spirit in the economy.

Federal Reserve Vice Chairman Richard Clarida said that the consumers are in better shape and the economy is looking resilient. Also, about 70% of the S&P500 companies declared quarterly earnings last week, and out of these 75% of them have reported earnings better than what they feared.

Suggested Reading

 

Negatives

1. Warning of a slowdown in global automobile markets

What You Should Know

Globally, automakers are facing a slowdown in sales and earnings due to disputes in trade. There is also massive pressure in the European Union and in China to develop and market eco-friendly, low emission vehicles. The development of these vehicles will require a large investment from the manufacturers in the research and development of new technology.

In the UK alone, auto production for the year to date has plunged 15.6%, making it the worst three quarters since 2011.

What You Should Look Out For

Global manufacturing industries are facing a major slowdown due to US-Chime Trade War, and a major contributor to this slowdown is the auto industry. The IHS Markit global car industry purchasing manager’s index has recorded a very sharp decline and has reached a fourth lowest reading since the inception of the index.

Volkswagen, the Wolfsburg based auto manufacturer, pointed out that the industry is going to face a slowdown at a faster than expected rate in many regions of the world. Ford and Renault have also issued profitability warnings, while Daimler (producer of Mercedes-Benz) is expected to set out a cost cutting strategy.

Suggested Reading

 

2. Rising risky corporate debt causes concerns in IMF circles

What You Should Know

Barclays CEO Jes Staley has raised concerns in tackling the rising amount of corporate debt in order to avoid another financial crisis. The International Monetary Fund has also given warnings regarding corporate debt as easy corporate borrowing has allowed the risk taking firms to accumulate large amounts of debt. There is a fear regarding the ability to service the debt due to the global economic slowdown.

What You Should Look Out For

The International Monetary Fund warned that about 40% i.e. $19 trillion of corporate debt in the major economies in the world are under the threat of default in case another economic downturn takes place. It is also seen that corporate sector is already vulnerable in a lot of the economies, which means that leverage is risky as there is lower debt servicing capacity. The global manufacturing industries are in a recession and there is a feared spillover effect of this downturn onto other industries of the world making leverage a very risky position.

Suggested Reading