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Monday, 14 October 2019

What we’re tracking on 14 October 2019

The annual meetings of the IMF and World Bank start today and wrap up on Sunday, with the talk of the town these days being the global economic outlook for 2019.

The IMF will weigh in on the question everybody’s been asking for months: Is the world economy sliding into recession? Global economic growth has slowed to 2.2% in 3Q2019, down from 4.7% at the start of 2018, according to Bloomberg Economics’ global GDP tracker. Newly minted IMF boss Kristalina Georgieva sees a “serious risk” the slowdown will spread, and on Tuesday the fund is likely to cut its 2019 global growth forecast from 3.2%, which was already the weakest reading since 2009, Bloomberg says. The bottom line is “a lot needs to go right” for the world to dodge a major slowdown, according to Tom Orlik, chief economist at Bloomberg Economics.

Why might you need to dig a bunker: The 18-month-long US-China trade… war has put global growth under pressure, causing it to contract for five straight months. The UK and EU have yet to seal a Brexit agreement, and regional tensions with Iran may still hike oil prices. And on top of all that, analysts are increasingly concerned that central banks lack the necessary monetary policy tools to offset macro pressures and prevent recession.

But all hope is not lost: The probability of the US falling into a recession is actually only at around 25%, the Bloomberg economist suggests, and, while its labor market has shown signs of easing, it should continue to support household spending. On the opposite end of the globe, China can also still shift if needed. And while central banks may not be well equipped to head off a crisis entirely, the monetary policy wheels are in motion and policy changes need time to deliver the desired effect.

Foreign Minister Sameh Shoukry begins his tour of Eastern Europe in Vienna today, according to a cabinet statement. He will then visit Croatia, Lithuania and Latvia for bilateral talks.

Key dates for your diaries this month:

  • The two-day ‘Egypt Can’ conference starts on Wednesday, 16 October. The event will be attended by 65 of the biggest foreign investors in Egypt as well as representatives from international financial institutions, businesses and the Egyptian government.
  • The Intelligent Cities Exhibition & Conference will take place at the Hilton Heliopolis on 23-24 October.
  • A B2B conference for German and Egyptian companies to talk cooperation will take place on Monday, 28 October in Cairo. Click or tap here to register.
  • The US Federal Reserve will meet on 29-30 October to review key interest rates.

PE firms forced to think small as big transactions go south: The number of private equity transactions worth USD 1 bn or less has hit a record high as the collapse of a number of large agreements force firms to think small, the Financial Times says. Buyouts and investments valued at under USD 500 mn have also hit new highs, and now constitute almost a third of the market. The increase in direct lenders and the abundance of PE firms looking to close in on these assets are expected to help maintain the trend for the foreseeable future, said David Kamo, a senior private equity banker at Goldman Sachs.

Failed IPOs to hit Goldman and Morgan Stanley where it hurts: Bulge bracket investment banks Morgan Stanley and Goldman Sachs have slashed their 3Q earnings expectations following a slew of underperforming IPOs and an M&A slowdown, the Financial Times says. Analysts have sharply reduced their estimates for Goldman by 15% over the past month, while Morgan Stanley’s forecasts have been cut by 10%.

SoftBank planning WeWork takeover: SoftBank Group has lined up a financing package for WeWork that could give it control of the company in return for much needed liquidity, sources with knowledge of the matter have said, according to the Wall Street Journal. The Japanese holding company already owns a third of WeWork and is considering putting in another few bn USD in new equity and debt. This would all but wrest control of the company away from Adam Neumann, the company’s co-founder — and until recently — the chief executive.

The embattled company does have another option though: JPMorgan is reportedly in talks with investors over a multibn USD debt package, sources said.

A provisional US-China agreement is a “net positive” for both economies, but don’t overestimate the impact of a trade truce,warns this Wall Street Journal video (watch, runtime: 01:31). Uncertainty surrounding future trade policy — arguably the biggest impact of the trade war on the US — has not abated, as many of the thorniest issues between the two countries have been tabled and no enforcement mechanisms negotiated. Investment and employment are faltering, especially in areas like manufacturing. Meanwhile, China has had its own domestic economic problems to contend with, which may well have been compounded by a fall in exports that is expected to have accelerated in September, the Financial Times says.

Morgan Stanley concurs: “There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” the investment bank wrote in a note, according to CNBC. “Thus, we do not yet expect a meaningful rebound in corporate behavior that would drive global growth expectations higher.”

Also making the rounds:

  • Moscow is looking to cut its exposure to the USD by accepting either EUR or RUB settlements for its “vast” energy exports, the Financial Times reports, and has already cult its holdings of US sovereign debt in just 18 months.
  • Kurdish forces are casting their lot with the Syrian military in a bid to halt Turkey’s invasion of northern Syria, the Associated Press reports. The report comes as President Donald Trump ordered that troops begin pulling out of the north of the country, increasing speculation that a full withdrawal may be imminent, the AP says.

A quick tip of the hat to our friends at Zulficar & Partners, who recently celebrated their 10th anniversary as a firm with friends, clients and colleagues at a cocktail reception held in the shadow of the Pyramids.

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