What Happened in the World Economy This Week and What It Means

(Bloomberg) -- Oil prices, the dollar, sanctions, trade tensions, trips to the International Monetary Fund and shock election results.

Take your pick and financial markets felt turbulence this week with ramifications for the world economy.

Emerging markets face the biggest test and that’s the central theme in our weekly wrap-up of what’s going on in the world economy.

Iran and Oil

U.S. President Donald Trump’s announcement to pull out of the Obama-era deal and reinstate sanctions on Iran sent ripples through markets, pushing oil further above $70 a barrel. Minimizing the economic damage will be key to the country’s efforts to ensure domestic stability. $200 billion in potential energy deals for Iran now hang in the balance. Higher crude prices will likely hit economies elsewhere.

Read More:

• Here’s What Oil at $70 Means for the World Economy
• Trump’s Iran-Deal Pullout Risks Blow to U.S. Economy From Oil
• Iran’s Door to the West Is Slamming Shut, and That Leaves China
• Saudi Arabia’s Safety-Net Spending Wipes Out New Tax Gains
• What Our Economists Think

Emerging Markets

Emerging markets are facing perhaps their biggest stress test since the Federal Reserve’s 2013 “taper tantrum” episode. Currency volatility and capital flows are among the worries on the horizon in Asia, while central banks across emerging markets are being put on the spot to manage fresh stresses, particularly in India. Almost two dozen key EMs will decide on interest rates over the next two weeks, but Federal Reserve chief Jerome Powell says he’s confident these markets can handle policy normalization in advanced economies.

Read More:

• Modi Orders Team to Do Math on New Jobs to Showcase Success
• Fed Study Shows U.S. Hikes Hit High-CPI Emerging Markets Hardest
• Scoreboard for Emerging Markets as Trump Hits Oil, Trade: Chart

Argentina, Malaysia and Turkey 

It’s back to the future for Argentina and Malaysia. Argentina this week asked the International Monetary Fund for help to stem a five-month rout in the peso, but locals are unlikely to be happy given their troubled history with the lender. Malaysia is dealing with fresh uncertainty about the economic and monetary policy outlook after a stunning election result returned Mahathir Mohamed to power. Meantime, Turkish President Recep Tayyip Erdogan said he will emerge victorious in his fight against interest rates after elections next month.

Read More:

• Messi’s Biggest Fan May Miss World Cup as Argentina in IMF Talks
• Erdogan's Bizarre Rates Theory Derives from Bond Math

U.S., China, and U.S.-China

Ongoing drama between the world’s two biggest economies kept up momentum, even as China seemed to soften its tone on trade over the weekend after the Trump team went home without much progress to report from meetings. A reported Trump-Xi phone call Tuesday previewed a top Chinese economic official’s visit next week to Washington. There was less harmony in Geneva, where the two powers were clashed at a World Trade Organization gathering. Nafta negotiators continue to struggle on a revised deal.

Read More:

• U.S. Extends Hearings Over China Tariffs Amid Trade Truce Talks
• China Is Said to Increase Scrutiny of U.S. Farm Product Imports
• Trump Is Right on China But Wrong on Tariffs: Hal Brands

Central Banks Wobble

Central banks are wobbling on the exit ramp from a decade of easy money. The Bank of England was the latest to leave interest rates on hold, weeks after officials signaled a hike was likely. The Reserve Bank of New Zealand signaled no plan to raise rates until late 2019, while Serbia stayed on hold after two surprise cuts. At the Federal Reserve, a high-ranking official said the U.S. central bank's balance sheet will never return to its pre-crisis level.

Read More:

• Powell Says Market Is ‘Well Aligned’ With Fed’s Rate Dot Plot
• Departure of Fed’s Dudley Will Open the Door for a Hawk on FOMC
• Fed Banks Targeted by New Bill as Political Scrutiny Mounts
• Philippines Raises Benchmark Rate as Inflation Battle Heats Up
• Straight Talk With a Touch of Wit: Welcome to the New RBNZ

Weekend Reading

• Business Hates Mexico’s Presidential Front-Runner. And He Doesn’t Care
• U.S. Economic Growth Can Withstand the Threat From Rising Prices
• Inflation Could Heat Up as Populations Age: Eco Research Roundup
• American Factories Have One Very Big Problem
• Australia Weighs the Cost of Resisting China's Meddling
• Great Food and Happy People – Nordic Cities Top EU Growth Rates
• ITALY INSIGHT: Investors Can’t Ignore Debt Arithmetic Forever

Chart of the Week

To contact the author of this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net.

To contact the editor responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Zoe Schneeweiss

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