Borrowing costs have fallen sharply as a result of policy changes. Lending remains subdued due to concerns over bank asset quality. Credit-fueled growth has increased private sector indebtedness. Banks remain well-capitalized and profitability is set to increase. 

The September U.S. Regulatory Update covers the Fed’s updated stress capital buffer proposal, announcement of a real-time payment system, and September Beige Book, in addition to a preview of Congressional priorities this fall regarding banking, fintech, and anti-money laundering legislation. 

Recession or new normal? Extensive U.S. yield curve inversion feeds concerns about a global growth slowdown; Policy uncertainty continues to weigh on earnings estimates; Low emerging market valuations present opportunities—particularly when combined with credible reform prospects; Mozambique’s debt restructuring--putting a lid on the “tuna bond” can; Sustainable debt issuance set to hit a new record high of over $350 billion this year

There is growing concern over disruption to global supply chains, given the now multiple rounds of tariffs in the US-China trade dispute. Despite all this, China’s current account and trade surplus look robust. This resilience is partly driven by a shift in the composition of exports away from the US and towards destinations like ASEAN and the Euro zone.

Low breakeven oil price for the current account provides buffer against shocks. Introduction of the fiscal rule in 2017 has led to significant reserve accumulation. Debt repayments spiked after the 2014 sanctions but are now less of a concern. However, private sector capital outflows have picked up and may accelerate. Portfolio inflows have returned but are sensitive to sanctions announcements.

China’s $2 trillion external liability seems large, but is manageable given China’s GDP, exports, and foreign assets. FDI loans, trade credits, and bank deposits are relatively sticky. China’s external debt overhang should be a minor concern for BoP and RMB depreciation. 

Lebanon’s economy is at a turning point. Despite the recent downgrades we still believe that Lebanon will not default given its sizable international reserves, robust banking system, and a track record of having never defaulted on foreign-currency debt.