Relations are growing frostier globally, as political leaders become more nationalistic. And this change in climate is impacting economies, rendering them less cooperative. Two significant changes affecting the global business cycle include the US Fed’s tighter monetary policy, the impacts of which have rippled throughout the world, as well as the geographical shift of the centre of manufacturing production to the East, to the dismay of some Western leaders.
US Federal Reserve
When looking at the performance of major markets such as US equities and oil, 2018 has so far provided much for bulls to cheer. But one market that has clearly underperformed year-to-date is gold.
The good news is that economic growth globally is strong, with a few exceptions, as the world shakes off the effects of the Great Recession. But economists are uneasy about troubling undercurrents, such as protectionist trade policies, that could whip up into a global trade war. Most are hoping that trade relationships can be repaired, acknowledging that the time is now to rebuild rather than burn bridges.
As April turned to May, the ongoing economic expansion being experienced by the United States officially became the country’s second longest on record. The period, which began in June 2009 when the world’s biggest economy began to emerge from the Great Recession
While the pace of bank M&A transactions in 2018 has been on par with the same period in 2017, deal valuations are on the rise. During the first quarter, the aggregate value of all announced bank deals was $4.08 billion, down sharply from $9.08 billion a year earlier
No one enjoys paying taxes, so news of tax cuts is warmly welcomed. In December, the US government passed a tax act that sharply reduces rates across the board, most significantly for businesses. It would seem to represent a boon to the US economy—but with the economy already charging ahead at full steam, will it in the long run be a blessing or a bane?
With economic growth returning to the developed world, the end of years of quantitative easing and easy monetary policy is in view; inflation concerns are reviving, guaranteeing rising interest rates along with tightening liquidity. Emerging markets in Latin America are benefiting from higher commodity prices, and despite some political tensions are proving to be an increasingly attractive destination for investor funds.
The US dollar is the world’s reserve currency, the representation of US economic might on the global stage and the de facto currency unit for the overwhelming majority of financial assets.
Landlocked Bolivia is viewed as South America’s poorest country, but its fortunes may be turning for the better. The government plans to nearly double its coca production but also further develop what is purported to be the earth’s single-largest reserve of lithium, a light metal used in batteries, which is experiencing skyrocketing demand. Bolivia could be on the cusp of a rags-to-riches rebirth.
The battle between the globalists and the populists has captivated people around the world, including investors, who are today inclined to place political news ahead of the more tried-and-true economic indicators in making decisions. Despite the turmoil in politics, though, many leading economies, especially that of the US, are doing rather well, with no major storms on the visible horizon.