India, other major countries casualties of booming American economy Back to News & Events List


Making America great again isn’t proving so great for other parts of the world.

With the rise in the dollar and interest rates already squeezing emerging economies just as President Donald Trump’s trade war threatens China, the US is set to be the only Group of Seven nation to see economic growth accelerate this year as Trump’s tax cuts kick in.

The end of the short-lived euphoria of a synchronized global upswing is already evident in financial markets. NatWest Markets notes its basket of so-called growth assets such as the Australian dollar and copper is down about 4.5 per cent this year compared with the almost 7 per cent gain of the Standard & Poor’s 500 Index.

The gap in performance “certainly captures the imbalanced nature of growth this year,” said Jim McCormick, head of cross-asset strategy at NatWest.

The global backdrop will frame discussions when the Federal Reserve holds its annual policy symposium this week in Jackson Hole, Wyoming, at which Chairman Jerome Powell will speak. The Fed’s two interest-rate hikes of 2018 have helped lift the dollar almost 6 per cent on a trade-weighted basis this year, making it costlier for international borrowers to repay loans.

For now, Mark Nash, head of fixed income at Old Mutual Global Investors, bets the domestic economy will keep the Fed raising rates although it could end up creating headwinds for itself.

“Once that pain in emerging markets gets particularly acute, that naturally will spread back to the US and change things in terms of how the Fed needs to manage domestic monetary policy,” he said on Bloomberg Television. “For now, you can’t fault what Powell is doing, but the implications of it might come back to haunt him.”

Source: Bloomberg

 


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