Dispatch from Washington – Takeaways from IMF annual meetings
We spent the week in Washington DC for the IMF Annual Meetings, engaging with policymakers and central bankers from around the world. The broad consensus is that the global macro outlook is solid, perhaps not booming, but resilient and supported by a dovish Fed and strong conviction that AI-related capex will provide a significant boost to growth. China appears to hold the upper hand in the trade war due to its dominance in rare earths. Tariffs are no longer the market’s primary concern, though this could quickly change if the U.S. administration moves toward tighter trade restrictions. The U.S. government shutdown is likely to be resolved soon and is not currently viewed as a material risk. Tensions with Russia remain elevated, but there seems to be little appetite to engage with Europe at this stage. The upcoming USMCA revision is perceived as one of the key next developments on the trade front. Emerging market central banks generally delivered a hawkish message, emphasizing their commitment to fighting inflation. In Latin America, focus is on upcoming elections, which could reshape the region’s political landscape. Investor sentiment toward Japan is mixed, awaiting further clarification on the new government.
U.S. and China – Cold trade war lingers
Last week, tensions between the U.S. and China resurfaced, adding uncertainty to markets. The planned Trump–Xi meeting in Korea is likely to be delayed, as Trump appears more eager for the encounter than Xi. Following his usual pattern of escalation and de-escalation, Trump has since toned down his rhetoric. China maintains substantial leverage over the U.S. given its advantage in key supply chains. We expect relations to continue deteriorating, though primarily through non-tariff measures and foresee a prolonged cold trade war persisting between the two nations.
Algebris Investments’ Global Credit Team
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