Kuwait: January 14, 2020


China’s economy will be offered some reprieve as a ‘Phase-One’ trade deal with the US comes into effect from January 15th. This should give its external sector a much-needed boost after exports were down (-1.2% y/y) for the fourth straight month in November.

  • The year 2019 turned out to be one of the best years for global markets since the onset of the global financial crisis a decade ago with the MSCI AC World index closing the year with a gain of 24%.
  • The strong performance of global equities was supported by a diffusion in trade tensions between the US and China after the agreement on a “phase one” trade deal, the robust performance of US tech giants, and to a lesser extent, by a recovery in the Eurozone and Asian markets.
  • December witnessed the best performance of Emerging markets since January. The MSCI EM Index rallied by 7.2% during the last month of the year to close 2019 with a gain of 15.4%.
  • The GCC markets managed to close the year in the green but have significantly underperformed their developed and emerging markets peers. The S&P GCC Composite index closed the year with a gain of 7.6%, while the S&P Pan Arab Index was up 8.2%. Kuwait, however, had an exceptionally good year with the All Share Index adding 24%, while the blue-chip Premier Market Index rallied by 32% outperforming most global markets.


Pessimism over the US growth climate has mostly ebbed over the past month amid decent economic data especially on jobs, housing and service sector activity and also the boost to sentiment from the partial US-China trade deal which could ease pressure on the still-weak US manufacturing sector. Estimates of fourth quarter GDP growth have been rising and the Atlanta Fed ‘nowcast’ suggests growth could even have reached an annualized 2.3% in 4Q19 from 2.1% in Q3. This would leave growth at a decent 2.4% for 2019 overall, though still down from 2.9% a year earlier and versus a consensus forecast of 1.6% for 2020. A reasonably solid economic picture, a strong stock market, contained inflation and reduced risks from overseas trade point to little urgency from the Federal Reserve to change interest rates from current levels, a view supported by minutes from the bank’s December meeting that showed a growing consensus among officials for keeping policy on hold through 2020.

There was at last some positive news on trade with the US and China agreeing a ‘phase one’ deal that effectively calls a provisional truce on their now 18-month dispute, and is scheduled to go into force from January 15th. The deal sees China purchase $40 billion more US agricultural goods per year, take steps to end forced technology transfer and also avoid currency devaluation to gain competitive advantage. The US on the other hand will halve the 15% duties on imports from China introduced in September and shelved further tariff hikes that were scheduled for December.

While the agreement represents a first step in deescalating the quarrel which has dented confidence, trade, and manufacturing worldwide and should ensure no further duty hikes, it leaves tariffs on around $250 billion in US imports from China imposed before September in place and difficult issues such as Chinese state subsidies and cyber intrusions unresolved. Prospects for a substantive ‘phase two’ deal could be influenced by political factors ahead of the November presidential election and to the extent that the deal discourages the Federal Reserve from further policy loosening, the net boost to the US economy could be positive but modest.


Japan’s third quarter growth was revised up to an annualized 1.8%, well above the initial estimate of 0.2% mainly thanks to an increase in investment and household spending. However, the pick-up in household spending was likely driven by consumers’ looking to beat the sales tax hike in October, and is therefore unlikely to be sustained in Q4. As one indicator of this, the decline in import growth moderated to 4.8% y/y in 3Q19, but had returned to a much steeper 15% fall by November, reflecting underlying weakness in domestic demand. Meanwhile exports continue to struggle, having fallen for a year and were down 7.9% in November. Nonetheless, during its monetary policy meeting in December, the Bank of Japan maintained a largely positive stance on the economy and refrained from policy easing measures, as uncertainty over the global economy waned not least because of the US-China trade agreement.


The new year started with geopolitical risk back on the oil market’s agenda. The price of Brent crude oil jumped more than 3% to $69/bbl after a US drone attacked killed Iranian general Qassem Soleimani while in Iraq. With regional tensions spiking and Iran later retaliating with a strike on a US military base in Iraq, oil prices look set to benefit from elevated geopolitical risk premia in the near term, as well as more constructive demand-supply dynamics that emerged towards the end of 2019. The latter helped Brent finish the year with annual gains of 23% – its best performance since 2016. These included the US-China trade agreement and the OPEC+ decision to cut oil production by an additional 500 kb/d from current levels (taking total cuts to 2.1 mb/d) until at least March. Markets expect the new deal to help reduce the supply overhang and minimize stock increases.

Meanwhile, on 1 January, tighter regulations on Sulphur emissions in shipping (bunker) fuels by the International Maritime Organization (IMO) went into effect. Seaborne freight is mandated to run fuel containing no more than 0.5% Sulphur from the previous limit of 3.5%. These regulations should favor light, sweet crude oils such as Brent and WTI that yield greater quantities of low Sulphur shipping fuels compared to the regionally more prevalent medium, sour crudes that yield less after refining.