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— This is the script of CNBC's news report for China's CCTV on August 12, 2019, Monday.
Wall Street had its most volatile week so far this year, with worries about trade policy and a recession dominating the market and continuing into this week. Former US Treasury secretary Lawrence summers warned in a weekend media interview that the risk of the US and global recession is now at its highest level in a decade.
He also criticized Trump's trade policies as foolish, arguing that under trade friction and protectionism, American workers would be poorer, corporate profits would be lower and the economy would be worse off.
Goldman Sachs has just cut its fourth-quarter growth forecast for the US economy by 20 basis points, to 1.8 per cent, in response to the higher-than-expected impact of the trade war. It thinks it may be difficult to conclude a trade deal between the US and China before next year's elections.
Goldman Sachs estimates the trade war will drag 0.6 percentage points off US GDP growth. Morgan Stanley, another big investment bank, warned last week that if the United States increased tariffs on Chinese goods in September, the global economy recession could last three quarters. Meanwhile, the bank's main business data also show that US hedge fund pessimism has reached its highest level in nearly two years.
The yield on the 10-year US Treasury note traded below 1.6 last week.
Strategists now expect the index's all-time low of 1.358% recorded on July 8, 2016, could be broken if trade tensions worsen. In addition, international gold prices have risen nearly 20 per cent this year, while US WTI light crude futures have fallen nearly 20 per cent over the past year.
The sharp divergence is also a warning sign of a recession. Given the current economic climate and pressure from Trump, expectations of another rate cut by the Federal Reserve are also rising, with trading data on federal funds futures showing a 100-percent chance of a rate cut in September.
About 88 per cent of 25 per cent rate cut and over 11 per cent of 50 basis points cut.
But at the same time, there are warnings that another rate cut by the fed could lead to a significant erosion of the dollar's global dominance.
The fed's last rate cut did not put much downward pressure on the dollar index, mainly because of fed chairman Powell's comments about medium-term adjustment. Once successive rate cuts break this forecast, it will be a direct blow to the dollar.
Data on retail sales, industrial output, business inventories and unemployment benefits are set to be released on Thursday, providing further clues to the economy. British retail sales and inflation figures are also worth watching. We can refer to the development trend of the world economy, with the U.S. earnings season coming to a close this week; sentiment in financial markets will remain dominated by trade policy and related statements. We will keep an eye on this issue.