US President Trump is set to meet Chinese President Xi Jinping at G20 summit. What can one expect out of this crucial meet?
There has been a lot of speculation about the outcome and various analysis have come out based on what the announcements might be like. They could say we are not changing anything though we have agreed to talk and keep talking and that might give some hope. Before leaving for Buenos Aires, Trump was reiterating that he was going to go through with the threatened 25% increase on tariffs and so it could also be a possible rollback on the of this so-called trade war. That would probably be the best outcome for the markets.
If trade war is one concern, the other concern is what is happening to crude oil prices. The US, Saudi Arabia and Russia, all three big oil producers, are part of the G-20 Summit. Do you think these three big oil producers will give support to falling crude oil prices?
I do not know that there will be multilateral discussions at this meeting about crude oil prices although even just a few weeks ago, it looked like prices were going to stay very high. So, it has been a dramatic drop and as shale oil production is expensive, a big drop in oil prices is not good for the US economy either.
Do you think Emerging Markets like India would be beneficiary of this war between US and China or would the impact be negative across the board?
We are seeing it negatively across the board. I really have to give a shout out to Prime Minister Modi for coming up with the JAI (Japan America India) partnership today at the G20. It was really terrific. The whole trade war situation is a drag on global economy. First of all, it creates uncertainties as well as disruptions between trade in agriculture and trade in industrial products. It is certainly having an impact on US GDP. Some positive discussions will probably be good for most markets and economies.
Global markets cheered the talks which came out from Fed chairman stating that maybe the peaking of interest rate cycle is just around the corner. Do you think that Fed is realising that higher interest rates would probably have negative impact on US growth?
Yes from the transcript, the expectation is we will see an increase in December but may be one rate hike will be knocked off next year.
The Fed chairs comment was that we are beginning to achieve their targeted neutral environment and they do not want to rock the boat. It is possible to raise interest rates too aggressively but we are having some structural problems, particularly in the agricultural sector and that is also negative. I am sure they are looking at that as well.