Signs are pointing to a looming slowdown in global trade growth,according to Morgan Stanley.
|Each component of the bank's proprietary global trade leadingindicator — except the U.S. dollar — declined in April to markback-to-back drops for the index, which is used to forecast realactivity with a one-month lead.
|“Business sentiment, crude oil, commodity prices and Baltic DryIndex shipping rates all pulled the index lower,” said a team ledby economist Elga Bartsch. “If [the] Morgan Stanley global tradeleading indicator declines three times in a row, we will likelyhave established a new downtrend in global merchandise tradedynamics.”
|Morgan Stanley anticipates a short divergence between itsleading indicator and global trade volumes (measured by the CPBWorld Trade Monitor), estimating that the latter will still rise atabout a 10% pace year-over-year for May. Going forward, however,negative base effects are likely to amplify the headwinds of “lessfavorable trends in commodity prices, the U.S. dollar and shippingrates.”
|In an ironic twist, Donald Trump's election victory — followinga campaign with clear protectionist overtones amid a retreat inshipping activity worldwide — coincided with a sharp accelerationin global trade that carried through to the first quarter of 2017and beyond.
|“As the strong trade data from Q1 rolls in think now clear'deglobalization' of last 2 ys a function of China's slowdown andcommodity shock,” Council on Foreign Relations senior fellow BradSetser said on Twitter.
|Now not only trade, but another key tenet of the globalreflation thesis is poised to fade.
|“Global growth has moved from boiling to merely simmering,”Credit Suisse Group AG analysts led by James Sweeney wrote in a May2 note. “We estimate that global industrial production momentum(3m/3m annualized growth rate) has fallen from a 5% January peak tounder 4% in April.”
|Credit Suisse expects industrial production momentum to continueto wane, with the growth rate falling to 3% this summer.
|Bloomberg News
|Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.
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