KUWAIT: The Organization for Economic Cooperation and Development (OECD) claimed that the global economy risked entering a new, long-lasting low-growth phase if governments continued to hesitate over how to respond to the latest pressures.


The trade war between the US and China has plunged global growth to its lowest levels in decade, leading the OECD to slash its forecasts for growth. "The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations," OECD chief economist Laurence Boone said. The US would grow 2.4 percent this year and 2.0 percent next year, versus earlier projections of 2.8 percent and 2.3 percent respectively. China would also take a hit as the second-largest economy, growing 6.1 percent in 2019 and 5.7 percent in 2020, outlooks the OECD previously cut from 6.2 percent and 6.0 percent.


Meanwhile, as Britain nears its exit out of the EU, forecast for growth is at 1 percent in 2019 and 0.9 percent in 2020 - only if it leaves the EU smoothly with a transition period which is far from certain. If Britain opts to leave without a deal, its economy will be 2 percent lower than otherwise in 2020-2021. The euro area would not be immune to such negative spillovers and would see its GDP cut by 0.5 percent over 2020-2021, also aided by a slowdown in its biggest economy - Germany. Looking at the broader picture, the global economy is now expected to slow to 2.9 percent this year from 3.6 percent last year before a predicted 3.0 percent in 2020.


A divided central bank
The US Federal Reserve has lowered its interest rate by 25bp to a range of 1.75-2 percent. The cut, marking the second in 2019, was highly anticipated by markets and failed to drive the greenback lower. The move comes just a week after the ECB's decision to cut its deposit rates and launch a new QE program. The Fed's language mirrored that of its July's policy statement pointing to weakening exports and business investments, with the bank claiming the cut is aimed at aiding the US economy amid "uncertainties" about future growth. President Trump reacted in a way which seems to have become customary - critiquing Powell for lacking "guts" as he has repeatedly criticized the Fed for cutting rates too slowly. Markets are now pricing in at least one more interest rate cut from the Fed this year. However, officials were divided regarding the decision and the need for future cuts. Seven members voted in favor of Wednesday's cut, while two members wanted to hold rates steady and one sought to cut even further.


Though there are some points of weakness in the economy and inflation remains lower than desired, consumers are still spending resulting in solid retail sales and a stable job market. Despite cutting rates twice this year, interest rates in the US remain far higher than those in other countries and are even negative in parts of Europe and Japan.


Repo turbulence
The Fed meeting followed several days of market disruption as the repo rate spiked last Tuesday, forcing the central bank to intervene. Borrowers in the repo market paid as much as 10 percent versus rates of just 2 percent seen just a week prior, prompting the Fed to pour billions of dollars into the financial system. The bank initially pumped $53 billion of cash into the system, and later announced two other doses to follow. The move reveals a lack of liquidity, though has been warranted as Powell explained due to companies needing a lot of cash for tax payments and for investors buying government bonds. He later added that these issues have no larger implications for the economy, and that the bank played its role appropriately.


Trade talks back on the table
The Trump administration has rolled out tariffs on Chinese imports since 2018 in an attempt to gain leverage in talks, while Chinese officials insist on wiping them out before they agree to any broader deal. The US has so far placed 35 percent tariffs on $250 billion of Chinese products, while China retaliated with tariffs on $110 billion of US imports. Looking ahead, the US is scheduled to raise existing tariffs to 30 percent on Oct. 15, and tax another $156 billion of products in December. Both sides recently showed signs of goodwill by suspending some planned tariffs as talks resume this week between US and Chinese officials, though a lasting peace between the world's two largest economies seems obscure.
Equities rise and treasury yields fall


Global stocks posted minor gains on Friday after central banks decisions hinted new easing measures. The S&P 500 is up 3.34 percent since the beginning of September, currently at 2,992 - near its all-time high of 3,027 seen a few months back. The Dow Jones Industrial Average followed a similar path rising 3.4 percent in the same period, currently trading at 27,094. US Treasury yields fell following the announcement as the 10-year note dropped to 1.768 percent though later edged higher. The two and ten year yields came close to inversion, with shorter term yields rising as the long end fell.

BOE copes with the Brexit era
The Bank of England unanimously voted to keep interest rates on hold at 0.75 percent as it awaits further clarity regarding the Brexit debacle. In its statement, the bank said inflation will likely become weaker if Brexit uncertainty persists, while data revealed just a few days prior that annual inflation dropped to a three year low of 1.7 percent from 2.1 percent. In its meeting minutes, the MPC said delays to an agreement on the UK's relationship with the EU would harm consumer and business confidence - made worse by the trade war between the US and China which has lowered economic growth rates in both countries this year. The UK economy contracted in the second quarter of the year by 0.2 percent. Looking ahead, the bank expects the economy to expand by 0.2 percent in the third quarter in hopes of avoiding a technical recession defined as two consecutive quarters of decline.


Most notably - for the first time the minutes recognized an outcome of a no-deal Brexit, stating it would lead to weakened growth, higher inflation, and a further drop to the pound. Policymakers signaled that rates are likely to rise gradually back from its post-2008 crisis lows only if there was a "smooth Brexit". Under a no-deal - the pound falls, inflation rises, and the economy slows leading to either cuts or rises according to the BOE. Looking ahead, PM Boris Johnson has said a deal is possible at the crucial summit of EU leaders on October 17th, but has insisted that the UK will leave on October 31st deadline with or without a deal. EU commission president Jean-Claude Juncker offered confidence that the EU and UK can reach a Brexit agreement before the October deadline, sending the pound back over the $1.25 mark.


SNB lends a hand to commercial banks
Switzerland's National Bank also held its interest rates steady irrespective of rising global pressures and a lowering of their own growth forecast for the year. The key rate was kept at -0.75 percent and the bank citied weaker prospects abroad. Furthermore, the bank is adjusting the basis for calculating negative interest by increasing the exemption threshold above which commercial banks who park their money with the central bank have to pay negative interest. Moving forward, banks can now store more money with the SNB before negative rates apply to 25 times their minimum reserves from 20 times now. In 2018, bank's paid nearly 2bn Swiss francs in negative rates which have remained for nearly five years now. For this year, the central bank dropped its inflation prediction to 0.4 percent from its earlier forecast of 0.6 percent. Additionally it predicts a rate of 0.2 percent in 2020 compared with the 0.7 percent it had forecasted in the previous quarter.


Last hawk in town
Continuing its path against the general trend in global monetary policy, Norway's central bank opted to raise interest rates for the fourth time in the past year,. The bank increased rates by 25bps to 1.5 percent and indicated it was more likely to hike in the next year than cut. Most of the world's major central bank delivered a dovish position of either cutting or holding interest rates. However, Oystein Olsen - Norges Bank governor - insists that forces such as the petroleum and related industries are driving the present growth which other countries lack. He added that the bank "had to do the right think for the Norwegian economy now" leading to the rate increase. Though later, he added that the uncertainty over global growth was the main reason for indicating that the increase could be the last of the cycle. Looking at inflation, the annual rate declined to 1.6 percent in August from 1.9 percent in the previous month - it's slowest since January 2018.

Japan's stubborn inflation
Crossing over to Asia, Japan's central bank held its overnight interest rate at -0.1 percent as it attempts to manage the impact from US interest rate cuts and a slowing global economy. The bank remains reluctant to add more monetary stimulus itself, promising a review at its next meeting and gave an explicit warning that it was concerned about risks to the economic recovery. Lower US interest rates reduce the yield gap between Japanese and US bonds which could lead to the appreciation in the yen, causing further harm to Japanese exports already under immense pressure from a slowdown in China. The BOJ has been struggling for the past 6 years to drive inflation closer to the 2 percent target, and many current officials believe that further cuts would pose a risk to financial stability and could even backfire - undermining inflation rather that driving it closer to its 2 percent target. Still, Governor Kuroda has repeatedly promised to act if necessary to maintain momentum towards the inflation goal. The USD/JPY pair has risen around 1.62 percent this month, currently trading at around the 107.58 level.

A sudden disruption for oil markets
Last week, oil prices posted their largest intraday jump following a strike on a Saudi Arabian oil facility which wiped nearly 6 percent of global supplies. State energy producer Saudi Aramco lost about 5.7 million barrels per day of output after aerial vehicles struck the world's biggest crude-processing facility. The attack suddenly raised geopolitical risks in global energy markets and sent safe-haven assets higher. Brent crude rose more than 20 percent to a four-month high of 71.95, later recovering to the 64.28 level seen today. The movement characterizes the fragility of the world's oil market - an intricate system which delivers 100mio barrels a day to consumers all around the world. Aramco's plant has since restored 2mio barrels that were lost, and the energy minister Abdulaziz bin Salman claims production will reach 11mio barrels by the end of September.

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