A Rough Week for the Markets
It has been a tumultuous week for the markets, as the trade war, and the new currency war escalates on between the U.S. and China. The People’s Bank of China set the yuan’s daily fixing at 7 per USD on Monday, weakening its currency significantly. U.S. stocks suffered their worst one-day drop of the year. The markets followed a decline on Tuesday when bond yields took a deep dive. While low yields support growth by reducing borrowing costs for businesses and consumers, typically, lowering yields are a sign of a worsening economic outlook.
We believe central banks around the world are reducing rates partly to weaken their currencies, a move that could support their economies by making exports cheaper. Such actions have the possibility of strengthening the dollar and put more pressure on the Fed to cut rates.
Stocks fell this Friday after President Trump suggested that a meeting with China on trade might be canceled. The Dow Jones Industrial Average fell by 0.8% in midday trading on Friday. The S&P 500 dropped 1.1%, while Nasdaq Composite was down 1.4%. The indexes had been down to open the day and fell further on the president’s comment.
Oil Demand, Another Victim of the Trade War
The International Energy Agency (IEA) said on Friday that the increasingly uncertain trade relations between the U.S. and China will put further pressure on global oil demand in 2019. In its closely watched oil-market report, the IEA downgraded its forecast for global oil demand growth for the third time in four months, lowering it to 1.1 million barrels a day from 1.2 million barrels a day. Demand for the January-to-may period was at its weakest since 2008.
Brent crude oil, the global benchmark, has dropped more than 10% in August, while U.S. crude is down 9%. The report mentioned that worsening relations between the U.S. and China could lead to reduced trade activity and less oil demand growth. Additionally, the U.S. Energy Information Administration said earlier this week it was reducing its forecast for 2019 world-wide oil consumption for a seventh straight month.