Kuwait: June 07, 2018
TRADE TENSIONS AND POLITICAL CRISES IN EUROPE PRESENT RISKS TO GLOBAL GROWTH
The past month has seen concerns over the global trade environment intensify, with the expiration of US wavers on import tariffs on key allies including Europe and North America prompting a backlash from the EU, which is threatening its own counter measures. Meanwhile, political crises in both Italy and Spain rattled European bond markets, although tensions somewhat eased in early June. While the world economy is still set to record robust growth of nearly 4% this year, the OECD’s latest report said that these and other risks “loom large” on the outlook, with growth still too dependent on government support and the need for structural reform increasingly urgent.
Global equities in May were unable to maintain their positive momentum shedding 0.2% as measured by the MSCI All Country World Index. US equities in May continued their positive run. The S&P 500 and Dow Jones Index each gained 2.2% and 1.1%, respectively. US markets continued to experience volatility fueled by ongoing talks surrounding trade wars with multiple partners including China, Japan, and the EU, President’s Trump withdrawal from the Iran nuclear deal, and the on-again off-again meeting with North Korea. On the monetary policy front, the Fed met during the month and did not hike rates, although market expectations are still strong for a June hike.
In Europe, the Stoxx Europe 600 in May was also unable to maintain its positive run from the previous month. The index posted a loss of 0.6%. Sub markets, such as Germany’s DAX Index and France’s CAC 40 Index performed poorly dropping 0.1% and 2.2%, respectively. Politics in continental Europe took center stage weighing down on both equity and bond markets. In Italy, the President blocked the government coalition’s pick for the Minister of Economy prompting a potential constitutional predicament and talks of new elections. In Spain, a no confidence vote saw the current Prime Minister forced out of office. In addition, the US voided the exemption on duties afforded to Europe forcing their hand in determining and implementing a retaliation.