Global Risks Begin to Recede
It isn’t just the Trump effect; from oil prices to Chinese outflows, the world is looking up
business surveys and markets have turned markedly more optimistic.
This is partly because investors hope that any fiscal stimulus Mr. Trump enacts will spill over to other countries. Yet a confluence of other factors is also at work: Oil prices are on an upswing thanks to production cuts by the Organization of the Petroleum Exporting Countries.
.. Firmer energy prices have pushed actual and expected inflation higher. U.S. inflation hit a five-year high in January. Ordinarily that’s bad, but it is now welcomed by central bankers who worried that too-low inflation can easily become destructive deflation.
.. In mid-July bond markets expected inflation in five to 10 years’ time to average 1.2% in the U.S., 1.4% in the eurozone, and 0.1% in Japan. Those figures have since jumped roughly half a percentage point.
.. hopes for fiscal stimulus under Mr. Trump and a Federal Reserve continuing to err on the side of raising rates too slowly, rather than too quickly, are why expected inflation has risen.
.. projects annual growth in nominal Chinese gross domestic product—economic growth plus inflation—will reach 11% in the current quarter, up from below 7% a year earlier. This growth traditionally has correlated closely with oil and industrial prices.
.. political uncertainty hasn’t been the confidence killer that many feared.
.. Mr. Trump has prioritized rolling back regulations; he has yet to act on his harsh protectionist rhetoric.
.. The global economy is still likely to grow just 3.4% this year
.. China may owe its growth rebound to a debt bubble that could soon burst.