Last week the World Bank downgraded its 2016 global growth forecast to 2.4% from the 2.9% pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.

According to the latest update of its Global Economic Prospects report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for 40% of the downward revision. Growth in these economies is projected to advance at a meager 0.4% pace this year, a downward revision of 1.2 percentage points from the January outlook.


On Tuesday, the IMF’s first deputy managing director, David Lipton, said that China is doing a step forward in terms of its economic rebalancing, however, increasing corporate debt could pose risks to growth in the medium and long term if the debt problem is not solved. Furthermore, Lipton pointed out that the corporate debt load, which is at 145 percent of GDP, though still manageable, is high and rising fast. China needs a comprehensive plan and concrete actions especially for State-owned enterprises in order to avoid problems in the long run.

According to Chinese official data showed on Monday, the country’s GDP demonstrated the slowest growth (6.7 percent year on year in the first quarter) since the global financial crisis in early 2009. However, the figure still in line with the official 2016 target range of 6.5 – 7 percent.


With less than two weeks before UK voters decide whether to leave the European Union, investors are getting nervous about possible economic and market implications from that decision.

USD strengthened, as the currency is viewed as safe harbor during times of market stress. However, the true test for the currency lies ahead in the Federal Open Market Committee FOMC rate decision. Volatility in advance of the event has been exceptionally high.

CNH retreated as USD surged and China’s trade surplus narrowed to US$49.98 billion in May. Official data showed China’s services growth slowdown, rising capital cost and weak demand. The People’s Bank of China (PBOC) may continue to inject liquidity into the market and cut the reserve requirement ratio (RRR, the amount of cash the country’s banks have to hold), which may pressure CNH.

Global assets and currencies will likely continue to be volatile with several events carrying potentially major consequences for global markets during the next two weeks. The calendar includes meetings of the Bank of Japan and Federal Reserve, the “Brexit” vote and a parliamentary election in Spain.

Precious Metals

Markets have become more nervous about Brexit as can be seen by higher risk premiums. Uncertainty will likely trigger further risk aversion in financial markets ahead of the 23 June referendum.

Currently, gold prices have risen (driven by the uncertainty and rising investor risk aversion) and will likely continue to do so ahead of the Brexit referendum. The first possible reaction to a Brexit outcome will be higher gold prices. In the days and weeks following the Brexit result, gold prices could rally to USD 1,350 per ounce.

 Oil in a global economy 

OPEC (the Organization of the Petroleum Exporting Countries) and IEA (International Energy Agency) both agreed that oil markets will balance later this year.

In its June Oil Market Report, OPEC left its forecast for the year largely unchanged, projecting that supply and demand will come into balance in the second half of the year. Demand should hold steady at 1.2 million barrels per day while non-OPEC supply continues to fall.

The IEA in its own recent monthly report, mostly agreeing with its counterpart about the oil market balancing later this year. According to IEA report, the global surplus in oil production decrease from 1.5 million barrels per day (mb/d) to just 800,000 barrels per day in May. This happened mainly because of the outages in Nigeria and Canada. Global output is now about 590,000 barrels per day below May 2015 levels. Looking forward to 2017, the IEA forecasts demand growth continuing at a steady pace of 1.3 mb/d, while global stockpiles could start to shrink in the second half of next year.

Investment recommendations from Jefferson Trust


  • Overweight in equities;
  • Regionally, prefer to be overweight in the US and Japan versus Europe.


  • Remain underweight in bonds;
  • Sovereign fixed income returns are expected to be generally low over the secular horizon.


  1. China Daily: “IMF officials warns China of corporate debt risk”, 2016, Wang Yanfei, <http://www.chinadaily.>;
  2. China Daily: “China’s economy holds steady in May”, 2016, < 14/content_25702184.htm>;
  3. The World Bank: “Global growth forecast again revised lower to 2,4%”, 2016, < /news/feature/2016/06/07/global-growth-forecast-again-revised-lower>;
  4. Oil “OPEC, IEA agree: oil markets to balance later this year”, 2016, Evan Kelly, <http://oilprice. com/Energy/Energy-General/OPEC-IEA-Agree-Oil-Markets-to-Balance-Later-This-Year.html>;
  5. International Energy Agency: “IEA releases oil market report for June”, 2016, < newsroomandevents/news/2016/june/iea-releases-oil-market-report-for-june.html>;
  6. Bloomberg: “OPEC sees gobal oil market balancing toward the end of 2016”, 2016, Grant Smith, <>;
  7. Market Watch: “Dollar falls to 5-week low vs yen as “Brexit” fears spark safety buying”, 2016, <>;
  8. Citibank: “Weekly FX insight”, 2016, < ght_e.pdf>;
  9. CNBC: “China central bank cuts reserve requirement ratio by 0.5 percentage points”, 2016, Phillip Tutt, <>;
  10. Market Watch: “Dollar, yen rise as ‘Brexit’ fears mount”, 2016, < nues-to-gain-albeit-moderately-against-dollar-euro-2016-06-14>;
  11. Abnamro: “Precious Metals Watch – Battle of safe haven assets”, 2016, Georgette Boele, <https://insights>.