Marking the end of a 30-year peace dividend

"Don't Need No Walls Around Me"

November 9 marks 30 years since the Berlin Wall fell – an event many see as the starting gun for the latest wave of globalization.

It's been three decades of trade and political liberalization and a golden age for financial globalization. It was a period when unfettered cross-border investment and booming trade pulled hundreds of millions of people out of poverty, MSCI's global equity index almost quadrupled in value and world growth rose from the 1990s average of 3.1% to almost 4.0% by 2009.

But the globalization wave may have crested.

The market booms of the late 1990s and 2000s and the crazy banking excesses they spawned culminated in the 2008 crash, the effects of which still linger. Rising inequality has led to electoral backlashes, bringing us Trump and his trade wars, Brexit and finally, a host of populist, illiberal political movements and 'strongmen' - all keen on nationalism rather than cross-border cooperation.

If that heady 30-year period is indeed ending, should world markets be running scared? It's an $80 trillion global GDP question. Is the much-vaunted peace dividend talked about in 1990 about to be whipped away? Elections in the United States, Britain and elsewhere may well dictate the path from here.

Graphic: Globalisation 2.0

Hit And Miss, America And Europe

It's a close call but for the S&P500, the third 2019 quarter could bring the first quarterly year-over-year earnings decline since 2016.

Despite juicy beats from heavyweights Apple and Facebook, earnings are expected to have declined 0.8%, according to IBES Refinitiv. That's better than earlier forecasts - a month ago, a 2.2% decline was predicted. Remember also that Q1 and Q2 estimates started negative, yet ended positive. So upcoming reports by names such Occidental Petroleum, CVS Health, Qualcomm and Walt Disney Co. may well move the needle across the line.

No such hope for Europe. The STOXX index is seeing the worst quarterly earnings in more than three years, Refinitiv says. It expects Q3 earnings to drop 8.4%, the biggest quarterly fall since mid-2016.

Also, of European companies to report so far, 59.3% exceeded analyst estimates. The US figure is 75%.

Graphic: Third-quarter S&P 500 earnings

Negative Vibes

South Africa is in for a momentous few days - its rugby team could win the World Cup and its government could lose the investment-grade credit rating it has held for almost 20 years.

That rating has afforded South Africa abundant foreign investment and low borrowing costs. Now though its membership of that club might be about to end as Moody's, the only big rating agency not to have consigned South Africa to 'junk', reviews the Baa3 rating on Friday.

An immediate downgrade looks unlikely, despite Finance Minister Tito Mboweni's budget bombshell forecasting a big budget deficit and ballooning debt. More probable is a negative assessment portending a downgrade further down the road. But that will be enough of a kick in the teeth for South Africa, crippled by anaemic growth and the weight of supporting ailing power utility Eskom.

Losing investment grade would see South Africa ejected from the elite World Government Bond Index (WGBI), triggering around $15 billion in investment outflows, according to Goldman Sachs. Borrowing costs will also rise.

An outlook downgrade, though, would give South Africa a few months to put its house in order. That - and of course a rugby win - might be what Mboweni is praying for.

Graphic: South Africa debt

Brexit And The BoE

Rate cut or rate rise - that's the question Bank of England-watchers have been puzzling over. Bank policymakers have sometimes argued for an interest rate cut to offset Brexit-linked economic weakness and at other times warned a rate rise might be required as currency weakness risks sparking inflation.

On Thursday though, the biggest change at the BoE meeting could be the rebranding of the 20-year-old Inflation Report as the Monetary Policy Report. That will focus on forecasts and ad-hoc analysis rather than merely reviewing the previous quarter.

Policy rates should stay at 0.75 %, with little chance that dovish commentary from policymakers Michael Saunders and Gertjan Vlieghe will translate into a rate cut vote.

But the BoE has been edging away from long-term guidance that rates are on an upward path, noting in September that this hinged on Brexit and the global economy picking up. Saunders has said since then the BoE cannot wait indefinitely for Brexit uncertainty to lift, and that economic slowdown strengthens the case for easing policy.

For now, policymakers appear happy to sit on their hands, given the December 12 snap election and a new January 31 Brexit deadline. Also, the government is promising a spending boost that the BoE estimates will add 0.4% to GDP in the next couple of years.

On the other hand, if the opposition win power, Brexit may be delayed or even revoked, reducing the need to cut.

Some policymakers doubt a rate cut would do much good anyway. Deputy Governor Dave Ramsden fears the slowdown is damaging the economy's productive capacity so lower interest rates are more likely to boost inflation than lift growth.

No Chile For Old Men

Any optimism that China and the United States will settle their trade differences this month has been doused. And not merely because Chile called off the Nov 16-17 Asia-Pacific summit where the first phase of the bilateral Sino-US trade deal was to be signed. US Secretary of State Mike Pompeo has stepped up verbal attacks on China and Beijing is expressing doubts that long-standing issues with Washington can be resolved.

With the trade war now almost two years old, upcoming data from China, Malaysia, and Taiwan should underscore the deterioration in global demand. Surveys showing Chinese exports in a slump haven't left much hope for positive surprises.

Meanwhile, the Communist Party's 4-day plenum has wrapped up with little visibility on what the plans are to tackle the effects of the trade war, food inflation and pro-democracy tensions in Hong Kong.

Graphic: China GDP contributions