Global Economic Insights: Interest Rate Decisions, Reactions to Trump Sanctions, and Gold ETF Demand
Global markets continue to focus on recent developments regarding economic and trade policies. The Fed's interest rate cut, concerns about the European economy, and trade policies between China and the US are prominent factors shaping the world economy.
Impact of Trump tariffs on the European economy Yannis Stournaras, the President of the Bank of Greece, expressed that US President Donald Trump's promises of tariffs and trade barriers could harm the European economy. Stournaras warned that this policy could negatively affect the European economy and put pressure on exchange rates. He noted that the EU's trade policies could be impacted, which might lead to specific consequences for the European Central Bank's monetary policies. Stournaras emphasized that the main impact would be shaped by concrete actions from the Trump administration, adding that the ECB would continue its policies in their current trajectory for now. During this period of increasing uncertainty over the European economy, definitive moves from the US will be closely monitored, particularly regarding fluctuations in market expectations stemming from tariffs.
Trump's tariff plans According to an analysis by S&P Global, Trump's promises to impose a 10% tariff on imports and a 60% tariff on Chinese goods may just be the starting point of a negotiation strategy. These anticipated, though unlikely, levels of tariffs could increase US inflation by 1.8 percentage points in the first year if Trump follows through. S&P predicts that this policy would particularly hurt US production by at least 1 percentage point and increase temporary inflationary pressures. However, experts believe that the likelihood of such a tariff policy being fully implemented is low. S&P indicates that the tariffs might remain merely theoretical but could significantly influence market expectations.
Chinese companies' operations in third countries Maybank economist Erica Tay stated that the uncertainties created by Trump's trade policies could target the activities of Chinese companies in third countries. Tay noted that high tariffs on Chinese cars produced in Mexico might highlight factories where Chinese manufacturers operate as completion hubs abroad. She pointed out that Chinese factories could be among the targets of tariffs set by the Trump administration and emphasized that global supply chains could be affected by such uncertainties. With the details of the Trump administration's policies becoming clearer, it is considered possible that Asia-centered production-focused companies may need to adopt more strategic positions.
Slowdown in the UK labor market The declining trend in the UK labor market is notable for showing the weakest wage growth since 2021. Data from the Recruitment and Employment Confederation/KPMG indicated that in October, the starting salary index for permanent positions fell to 52.5 from the previous month's 52.8. The continued decrease in job applications and starting salaries in the country signals potential increases in economic uncertainties. Recent tax hikes are expected to also impact hiring. The placement index dropped from 44.9 in September to 44.1 in October. Experts note that uncertainties surrounding the new government's budget and economic policies are putting pressure on the labor market. The weak performance of starting salaries raises concerns about the sustainability of economic growth.
Decline in household spending in Japan Household spending in Japan fell for the second consecutive month in September. Due to high prices cutting consumer appetite, spending decreased by 1.1% compared to the previous year. This decline is viewed as a negative sign for the Bank of Japan's plans to raise interest rates. The decrease in consumer spending did not meet market expectations. Takeshi Minami, Chief Economist at the Norinchukin Research Institute, highlighted that although a consumption increase is observed, it is not permanent. The economist stated that currently, high living costs and households' tendency to save are suppressing consumer spending. It was mentioned that economic recovery might remain weak under these pressures.
Hong Kong and Gulf countries follow the Fed The Hong Kong Monetary Authority (HKMA) lowered its interest rate by 25 basis points following the Fed's decision to cut rates. This move is seen as an unavoidable necessity due to Hong Kong's tightly pegged monetary policy to the US dollar. The HKMA updated its monetary policy to align with the US at 5.0%. In parallel, many central banks in the Gulf Cooperation Council also reduced interest rates following the Fed's decision. Gulf countries generally align with US interest rates due to the dependence of their currencies on the dollar. This action by the GCC central banks stands out as an effort to maintain their economic balances based on oil and natural gas exports.
Peru Central Bank lowers interest rate Peru's Central Bank implemented a 25 basis point cut, bringing the interest rate down to the expected level of 5%. With this step, Peru continues to hold one of the lowest interest rates in Latin America, shaping its monetary policy according to inflation data. The Central Bank emphasized that future interest rate changes would depend on specific economic data. Analysts indicate that this move by Peru aims to promote economic growth. In a period marked by ongoing inflation pressures, the central bank is expected to keep its monetary policy flexible. Maintaining the interest rate at 5% is crucial for encouraging investments and stimulating consumer spending.
Rising demand for gold ETFs According to data from the World Gold Council (WGC), October marked the sixth consecutive month of inflows into gold exchange-traded funds (ETFs). Global physically-backed gold ETFs have managed to attract investor interest with positive flows since the beginning of the year. Strong demand from North America and Asia has increased interest in gold. In a period characterized by geopolitical tensions and market uncertainties, investors are turning to gold ETFs as a safe haven. In October, gold-backed ETFs saw an inflow of $4.3 billion, raising their collective assets to 3,244 tons. Demand for gold remains strong amid ongoing market instability.