International Trends – January 2019

International Trends (1)

Big four escape threat of breakup by CMA

The Big Four accounting firms – KPMG, Deloitte, PwC and EY – have escaped a call for breakup after Competition and Markets Authority (CMA) proposed audits instead of break up. CMA also proposed changes that would open the market to smaller accounting groups.

 

Pause on interest rate hikes in 2019 by Fed likely

Amidst concerns that US growth rate will moderate in 2019 and reduced government stimulus measures, investors are betting that interest rates won’t rise in 2019. Fed-Fund futures indicate that there is a 91 per cent probability that Federal Reserve policy makers will end the year with interest rates at or below current levels. A slower pace of rate hikes by US central bank weakens the US dollar taking pressure off emerging market currencies. Emerging markets like India also attract investors by paying higher yields and thus lower US interest rates are favourable for them.

 

China-US trade talks to continue

In a positive development, China and US will hold Vice-Ministerial level trade talks in Beijing in January 2019. In a summit held in Argentina in 2018, US and Chinese Presidents Donald Trump and Xi Jinping had agreed to holding off imposing more tariffs for 90 days starting December 1, 2018 as to attempt negotiating a trade deal. The US-China trade war holds opportunities for India to improve its status as a manufacturing nation and it also means stronger ties overall with the US for India in long-term.

 

China may put reforms on backburner to boost economy

As the Chinese economy struggles, there is a possibility that the Chinese government may hold off on economic reforms and focus on growth instead. Planned reforms includes uplifting infrastructure and making changes to China’s state-run enterprises. Government in China has opted not to unleash a 2008-like stimulus and will instead opt for measures like making it easier to lend and introduce tax cuts.