• Friday, February 28, 2020

US exceptionalism will continue for as long as economies in China and Europe lag behind

Discussion in 'World Affairs' started by F-22Raptor, Feb 14, 2020.

  1. F-22Raptor

    F-22Raptor SENIOR MEMBER

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    This was the year that America’s outperformance in the global economy and financial markets was supposed to come to an end. As growth picked up, the gap between the pace of expansion in the US and the rest of the world was meant to narrow. Emerging markets and Europe were expected to gain momentum, attracting greater capital inflows because of cheaper valuations.

    Yet, six weeks into 2020, American exceptionalism has become even more pronounced.

    As the outbreak of the deadly coronavirus fuels concerns about a sharp slowdown
    in China’s economy, threatening global supply chains and putting a huge strain on commodity prices and emerging market currencies, investors are seeking refuge in US assets.
    Since the beginning of this year, the benchmark S&P 500 equity index has risen almost 4.6 per cent, and currently stands at a fresh record high. A gauge of global stocks excluding US shares, by contrast, is barely in positive territory.

    US equity markets continue to benefit significantly from the heavy weighting of technology stocks, the darlings of Wall Street and the main driver of the 11-year bull run in equities. The tech-heavy Nasdaq Composite Index is up 8.4 per cent so far this year, while the New York Stock Exchange’s Fang+ Index, which includes a number of dominant American tech companies, has soared 19 per cent.



    What is more, the Federal Reserve’s pivot towards looser monetary policy, and the high bar it has set itself for resuming interest rate increases, have helped push US corporate bond yields down to record lows.

    Various factors help explain America’s continued outperformance. First, the US economy, which is heavily reliant on consumer spending, is less vulnerable to a collapse in Chinese growth. As a proportion of gross domestic product, US exports to China (and to the rest of developing Asia, for that matter) are much smaller than those of Germany and Japan, to say nothing about Australia.

    Second, domestic politics is at work. Despite his nationalist and populist agenda, President Donald Trump remains markets’ preferred candidate in America’s upcoming presidential election.

    Expectations that Trump will win re-election – reinforced by the indecisiveness and splits
    within the Democratic Party, which is struggling to coalesce around a credible candidate to beat him – are providing further support to US equities.

    Indeed, Trump’s own approval ratings have crept up over the past several weeks. The contrast between the US president’s fortunes and those of his Chinese counterpart could not be starker.

    While Trump is benefiting from a relatively strong economy and a bitterly divided opposition party, President Xi Jinping – whose authority has already been hit by the protests in Hong Kong– is facing a fierce backlash over initial efforts to conceal the coronavirus.

    Third, the world’s reserve currency is maintaining its status as a safe haven
    . While most analysts expected the dollar to weaken this year as trade tensions eased, helping the global economy recover, the dollar index (a gauge of the greenback’s performance against a basket of other currencies) has risen almost 2.7 per cent since early January.

    The dollar’s rapid ascent, although partly the flip side of a weaker euro, which is under further strain this year because of the severity of the industrial downturn
    across the bloc, is eroding the profits of American multinationals. This is putting pressure on corporate earnings, the Achilles' heel of the US equity rally.
    Tech stocks are particularly vulnerable to a sustained rise in the dollar. According to data from FactSet, the sector has the highest international revenue exposure in the S&P 500, with foreign markets accounting for 57 per cent of tech firms’ sales. The combination of a
    China-induced downturn and a stronger dollar creates a significant headwind for America’s economy.

    Still, the period of US exceptionalism, which began in 2018 when America’s economy started to outperform the rest of the world, is unlikely to give way to a new phase of economic and market leadership any time soon. A more plausible scenario is that, instead of other regions outshining the US, America’s appeal among investors starts to wane.
    Markets have yet to come to gripswith the US presidential election, partly because it is still nine months away, but mainly because of the huge uncertainty surrounding the outcome of the Democratic nomination.
    As JP Morgan noted in a report published last month, this year’s election is unique not just because “an incumbent [Trump] has never been so unpopular entering a re-election when the unemployment rate is so low and the equity market so strong”, but also because there is a real risk of a “surge to the left” in the Democratic primaries.

    Yet, if even Trump’s trade warand his attacks on the Fed have failed to prevent the S&P 500 from reaching an all-time high, there is little risk of America losing its reputation as the best house in a bad neighbourhood.

    https://www.scmp.com/comment/opinio...-continue-long-economies-china-and-europe-lag
     
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  2. UKBengali

    UKBengali ELITE MEMBER

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    World is rapidly becoming multi-polar.

    By 2030, China will be richer than USA and will have caught up in most aspects of technology.
    Muslim countries like Turkey, Indonesia and BD will make much progress by then and we will see the start of the formation of a "Muslim Bloc" that will be a 3rd pole with West and China.

    This is the last generation of Western dominance.
     
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  3. F-22Raptor

    F-22Raptor SENIOR MEMBER

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    Wishful thinking to say the least. As for China, their economy will take a significant hit this year from the coronavirus. And relative to the US, will be another lost year for the Chinese.
     
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  4. UKBengali

    UKBengali ELITE MEMBER

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    Nah, you are looking at nominal and not at PPP which is what matters in the end.


    As per IMF forecasts to 2024:

    https://www.imf.org/external/pubs/f....x=52&pr1.y=13&c=924,111&s=NGDP_RPCH&grp=0&a=

    upload_2020-2-14_2-2-11.png

    See China's GDP is growing roughly 4% a year quicker than USA.
     
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  5. Dalit

    Dalit BANNED

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    You and the Aussie source are getting a little ahead of yourself. We don't live in an exceptional world anymore. Multipolar at best.
     
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  6. Juggernaut_is_here

    Juggernaut_is_here FULL MEMBER

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    It is the exceptionalism of the Jewish community that drives the US economy.......Facebook,Google,WhatsApp,Oracle etc..