The global economy has weakened a little and asset markets have tumbled because of the United States' trade disputes with China and other nations. The U.S. economy also faces headwinds from escalating trade tensions, a stronger dollar, and higher short-term rates. Federal Reserve chair Jerome Powell said that the central bank was prepared to act to sustain the economic expansion if the various trade spats weakened the economy. We predict the Fed will cut its policy rate by 50 basis points by the end of 2019.
In Europe, the elections for the European Parliament shook up domestic politics in a number of countries, including Germany and Italy. While the results showed an increase in support for right-wing populist parties, the feared populist wave fell short of expectations. German Chancellor Angela Merkel, who is widely regarded as the leader of Western Europe, will not seek a fifth term after her current term expires in 2021. Tracking the downward trend in risky assets, oil prices fell sharply in May amid concerns that rising trade tensions will weaken the global economy and hurt demand for crude.