‘Defiance’ Is Word of the Week as Fed and Xi Stand Their Ground
(Bloomberg) -- A deteriorating global economic outlook wasn’t enough for the Federal Reserve or Chinese government to come to the rescue.
Here’s our final weekly wrap of 2018 on what’s going on in the world economy as a new year nears.
Fed and Foes
Fed officials looked past market fury and White House taunts to hike the benchmark interest rate in their final decision of 2018, matching the consensus forecast even as expectations dwindled on account of weaker data. It’s going to be even more of a wild ride from here as a gloomy outlook and lingering uncertainty around the neutral rate threaten the two-hikes-in-2019 plan.
Keeping the cautious tone, the Bank of Japan held its policy stance in a decision that surprised no one, and now they have slowing inflation to worry about. The Bank of England and Bank Indonesia also paused. Thailand and Sweden announced dovish hikes, with the Riksbank ending more than seven years of no tightening. Mexico hiked.
- CHINA INSIGHT: New Front on Easing: Pace Shadow Deleveraging
- BOJ’s $3.5 Trillion of Cash Changes Little for Ordinary Japanese
- The Fed’s IOER Experiment May Already Be Reaching Its Limits
The Duel We Can’t Avoid
Chinese President Xi Jinping came out with guns slinging, pledging that the world’s No. 2 economy will take instructions from no one as he commemorated 40 years of China’s opening.
The defiant tone is ominous for U.S.-China relations in the new year, though the two did start to chat again on trade. The tensions are blamed for stalled Japanese exports, Chinese factory layoffs, and Indonesia’s ballooning trade deficit. And the key global trade indicators we’re watching are largely on edge, though still in “normal” range.
- CHINA PREVIEW: The Marching Orders for 2019 – Stabilize Growth
- Goldman Says China-U.S. Deal Would Be 2019’s Top Economic Event
As the 2019 previews pour in, many loaded with risks, here’s a sober take on how bulls see things versus bears. Meanwhile, soft data is still looking soggy, with U.S. sentiment among consumers and homebuilders slipping. German businesses are sharing the pessimism as are global firms with exposure to Europe. The Italian government struck a deal on its budget with the EU, avoiding costly penalties, while Japan reached an ominous marker as its budget tops 100 trillion yen.
- One of World’s Worst Fiscal Offenders Could Be In for More Pain
- Time to Move to Cash as Debt Woes Mount, This Asset Manager Says
- Saudi Arabia Makes Rare Bullish Call on Oil in Its 2019 Budget
- BIS Tells Recession Hunters It Can Top the Yield Curve Indicators
- Fear of Fear Itself Is an Economic Risk as Uncertain 2019 Nears
- World Can’t Quit Negative Rates as JGB Yields Approach Zero
- Sinking Inflation Will Test Power of BOJ’s Doves in Risky 2019
- Romer and the Robots: Why Nobel Winner Fears the China Trade War
Chart of the Week
U.S. REACT: Fed Retains Flexibility as Dot Plot Downshifts
©2018 Bloomberg L.P.