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What happened this week in the world economy and what it means

Sep 07 2018 21:59
Michelle Jamrisko, Bloomberg

Investors are fast losing faith in emerging markets, adding to pressures on policy makers whose fights with inflation and currency routs are getting more serious.

The world is bracing for the next batch of tariffs from the US, which could make the last round look like child’s play. And Christine Lagarde says we’re not safe enough a decade after the crisis.

Check back later on Friday for US nonfarm payrolls data, which probably will show that employers added 198 000 workers last month after 157 000 in July, helping to trim the jobless rate to 3.8% to match the lowest level since 1969.

Here’s our weekly wrap of what’s going on in the world economy.

Contagion, crisis, cooling

It’s not just Turkey and Argentina’s problems. South Africa just fell into recession and brought the rand down with it.

Indonesia’s flirting with a milestone in currency weakness not seen since the 1997 to 1998 Asian financial crisis, though its fundamentals are still looking a lot better now versus then.

India also remains in a bit of danger as emerging markets pressures add to pricey oil and policy tightening to keep the rupee as the worst performer in Asia, with a dark outlook. You could always put your money in Thailand, a new haven favourite.

Over in Europe, Italy’s bouts of defiance and reassurance are keeping markets on their toes while officials insist that the budget released in the coming weeks will soothe investors. The UK is among the most exposed developed economies amid emerging-market wrath.

A next batch of American duties on $200bn in goods could be in the offing, while a public comment period passed without immediate action and President Donald Trump is getting an earful from businesses.

So far things aren’t really going according to plan for the US trade goals, and the deficit with China is at a record. Chinese resilience depends on the consumer. Auto-parts manufacturers in China are under fire, while the government is still eyeing ambitious goals for a new industrial age.

Nafta renegotiations are crawling along, with Trump railing on Canada ahead of a restart to US-Canada talks on Wednesday in Washington.

Central bank chiefs are broadly gearing up to fight market rout. Despite their president’s war against interest-rate hikes, Turkey’s central bank is pledging action to curb surging inflation.

Indonesia’s ready to forge ahead in their rate-hike onslaught, and with other rupiah-protection tools.

Russia’s feeling greater pressure to join the policy tightening cycle and Ukraine lifted borrowing costs to the highest level in Europe.

Philippine central bankers confront inflation charging to a nine-year high.

A fresh academic paper out of Brussels aims to calm European finance ministers on the end to easy money, while the OECD isn’t so sanguine about the bigger picture.

The Bank of Canada stood pat amid trade risk, and we can count on Australia to be on hold for a long time.

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