9 to 15 July: Only when the tide goes out…


The last decade with abundant liquidity and low commodity prices would have been the ideal period for governments to roll out structural reforms in order to reduce vulnerabilities and build up buffers. However, in aggregate, not much has been done; many countries barely ‘muddled through’ the post-GFC years. In particular, indebtedness remains unresolved as the global debt-to-GDP ratio stands at 318% at the end of 2018 Q1, only 3 percentage points below its all-time peak from 2016 according to the Institute for International Finance. High global debt in the context of increasing interest rates, tightening USD liquidity, a stronger dollar and bloating risk premia means that sustainability of debt and growth will be an even greater challenge for policymakers. Of course, there are exceptions; countries that carried out reforms and raised barriers to protect themselves from external shocks. These include Egypt, Peru and India. Time will tell, which countries were prudent enough to create reserves to weather the next economic downturn. As Warren Buffett famously put it ‘Only when the tide goes out do you discover who’s been swimming naked.’

Crude oil prices crashed during the week, as WTI and Brent fell about 5% and 7%, respectively from Wednesday to Thursday. The price of oil was dragged down due to dollar strength and the on-going trade disputes between the US and China, and the extent of the move was amplified by the release of news stipulating that Libya restarted oil production at a major field that had been shut down for months. West Texas Intermediate crude for August delivery closed at USD 70.58/bbl, while Brent crude futures price for September delivery was at USD 74.92/bbl on Friday.

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