Page 5 - Al-Rashed Newsletter Aug 19

POTPOURRI
RECESSION: WORRIED?

Globally the Hot topic is RECESSION, the question is this coming soon?
Shall the trade be worried?
Its repercussions?
Lets try and answer this…
The Trade war between the US & China which is getting uglier as days pass, is hinting towards a possible recession.
Last week the Yield Curve in US & UK which triggered a massive sell off in the equity markets hinted of a recession coming soon
coupled by major sell of equity in Argentina and 1/3rd of PESO devaluation amid resounding defeat of President in the primary
elections.
Investors dumped equity globally and turned to safe havens like GOLD , BONDS & Debt Market for a potential cover.
Weaker than expected Chinese retain sales and industrial outputs(worst in 17 years) set the mood for the market, with data later in
the day showing Germany’s economy contracted. Asia’s other economic powerhouses like India, Korea and Japan are also battling
the slowdown and investors looking forward for a potential stimulus by the governments.
As per the speech of Mr Trump on 20.8.19. he hinted that USA is no mood to give away with the demands with China and rejected
any possibility of recession in coming months. USA, the mother of all markets is still strong on its feet and FED’s Minutes which
would be watched very closely by the globe later today.

The outcome of BREXIT is yet to take its effects on the global markets.
Although 38% of economists surveyed by the National Association for Business Economics expect a recession in 2020 -- down
from 42% in an earlier survey.
The upshot: Only 2% of those polled expect a recession to start this year. Economists polled by NABE expressed concern that
U.S. tariffs on China and other countries, as a well as higher federal budget deficits, could hurt economic growth.
In other nations, notably Argentina and Russia, long standing problems at home are bubbling over at the moment , when global
investors are skittish and quick to bolt, as the woes add up, there aren’t a lot of rescue boats to help, which is why investors are
fleeing to usual safe havens- Gold and Government Bonds.
The world hopes the trade disputes between the larger economies to settle although if doesn’t the magnitude of the recession is
expected to be more painful as compared to Asia debt crisis in late 90’ and Global meltdown in 2008.
During a recession, jobs disappear. The largest monthly decline in employment in the last 10 recessions – excluding the big one –
was 2.6% on average.Generally, the biggest losses are in manufacturing and related industries. Sectors that rely on more
discretionary spending, such as leisure, hospitality and retail, all will lose jobs. Employment in financial industries will shrink, too,
because businesses and individuals borrow less. Jobs in construction, tech, media and entertainment also tend to pull back.while
stocks tank during a recession, they bounce back quicker. Typically, the stock market begins to fall from its peak months before the
actual recession starts. It also starts to recover before the recession technically ends.
Take the dot-com era. That recession started in March 2001, but stocks had already peaked 14 months prior. The Dow fell 11%
before the recession even began, on its way to a 30% rout at its worst, when it bottomed in September 2001. The recession didn't
end until two months later, a period in which the Dow rallied 20%.During the official downturn – from March through to November
2001 – the Dow fell 5.7%. The Dow increased 6.8% and 7.4% during the 1980 and 1981-82 recessions, respectively.The silver
lining in the cloud is because the banking system is on much more solid footing and household debt remain reasonable, some
experts feel the next recession will be more the “garden variety,” “and nothing like the Great Recession.” That may last six to 12
months and the unemployment rate will tick up two to three percentage points.
2020/1 will be interesting to see how to world battles the odds to stay afloat.

Source: USAToday.com

Goldy Chadha
Key Accounts Manager