GLOBAL OUTLOOK

Global Inflation Tamed (For Now)

Last week, the 2024 annual meeting of the International Monetary Fund (IMF) and the World Bank Group (WBG) began in Washington on Monday and lasted until Friday, October 25. 

• On Tuesday, the fund announced some exciting news: the battle against sky-high prices has mostly been won! 

• The inflation rate will cool down to 3.5%, which is pretty good considering that in 2022, it was soaring 9.4%. 

• Pierre-Olivier Gourinchas, the IMF research director, said, “The decline in inflation without a global recession is a major achievement” he attributed the slowing of inflation to a lessening of supply and demand shocks that caused inflation in the first place during the COVID-19 pandemic. 

When good news about the economy finally emerges, it's tempting to celebrate, but it’s always smart to stay wary. The IMF warns that central banks must remain watchful in fully bringing down inflation. 

• With inflation coming into control, it is necessary that the Fed and other central banks adjust their policies accordingly, which can be challenging in an unpredictable global market. 

• This is especially crucial in low-income countries already under stress from high debts and fluctuations in the currency market. 

The IMF also noted that it is projected that global growth is set to slow down. Luckily, the U.S. and India are picking up slack, whereas Europe and China are falling behind. 

• “Structural challenges such as population aging, weak investment, and historically low total factor productivity growth are still holding back global growth,” the report said.

• Despite these hurdles, there is still some room for optimism, but central banks will need to take to be careful with their policies. 

North Korea Enters Ukraine Conflict

A new player has entered the game; North Korea. Last week the White House confirmed the presence of North Korean troops in the border region of Ukraine. National Security Spokesman John Kirby announced that at least 3000 North Korean soldiers traveled to Russia to fight in the Russian invasion. South Korean president Yoon Suk Yeol responded in a press conference last Thursday that he would respond to North Korea’s provocation, and pledged to sell military equipment, a change in their internal policy not to sell weapons to active combatants of war. According to South Korean intelligence North Korea has sent 13,000 containers of artillery over the past year. Researchers at a government think tank in South Korea believe that the North Korean troops would be sent to the region of Kursk in Ukraine. Moscow has in turn responded to South Korea, a Russian Foreign Ministry spokesperson Maria Zakharova said last Wednesday, that the Russian government would react harshly to any provocations made by South Korea. Both Moscow and Pyongyang still deny the move of any troops into the Ukrainian invasion. 

"BRICS Harmony: India and China Strike a Border Truce"

BRICS, the alliance between Brazil, Russia, India, China, and South Africa, is like that one boy band that you’ve heard the name of, but you’ve never listened to any of their music. They have random reunions every couple of months that go viral, but you’re not sure if they actually did anything. BRICS just had another summit, with multiple new members, and a whole lot of new promises. They finally managed to begin solving one of their biggest flaws: the internal competition and hostility between India and China. 

In the 1960s, China and India fought in a war over their border on the Himalayan mountain range in order to gain more territory in the disputed region. While there hasn’t been a significant war since then, the region has seen border clashes and has been the subject of intense disagreement between the two countries. Moreover, the rough nature of the terrain has proved very difficult for both sides to patrol, ultimately leading to misunderstandings on both sides which most recently caused a skirmish resulting in multiple deaths a couple of years ago. 

Well, Modi and Xi, the leaders of India and China, respectively, sat down last week to discuss and pass an agreement to monitor the border in a safer, more amicable manner. While the nature and specifics of this border agreement remain secret, experts assume that it will change their border patrols for the better, but is unlikely to alter the cohesion, or lack thereof, within BRICS. This is because of the inherent ideological issues inside the faction as China and Russia view the block as a direct contrast to the western block of NATO however, countries like Brazil and India would prefer to view the block as just an economic organization. 

Regardless, this agreement will improve the efficiency of patrols across the region, and hopefully reduce any skirmishes or misunderstandings regarding the border.

MACRO

NASDAQ and the S&P Dropped It Like It's Hot

The S&P 500 had a rough week last week and it dropped by 1%. The NASDAQ has done even worse, dropping by 1.6%, putting a humble end to their 5-day winning streak. The numbers from last Wednesday are the lowest since October 7th and 8th.

But first…

What is the S&P 500? 

Its full name, the Standard & Poor’s 500, is a stock market index fund that tracks the stock performance of 500 of the largest companies listed on the United States stock exchange. 

What is the NASDAQ?

The NASDAQ is also a stock market index, but it tracks the performance for almost all the stocks in the NASDAQ stock exchange, which comprises 55% tech stocks.

Why has the market dropped?

• The 10-year treasury yield has risen up to 4.2%, which is the highest its been in 3 months. 

What is the treasury yield, anyway?

• It’s the interest rate that is paid on government bonds; most importantly, it serves as a reference point for other interest rates like mortgage rates. So if it goes up, mortgage rates are expected to go up as well.

So what?

The treasury yield increase is unusual since the Federal Reserve has cut rates by 50 basis points, so it would’ve been expected to go down, but the yield is up, and it’s confusing investors. 

The idea behind this is if there’s a decrease in the price of loans, there would also be a decrease in the return on government bonds because they gain less money. A reason for this increased yield could be due to the government issuing more bonds to fund its fiscal spending, but a concrete reason is still unclear. 

In the big picture, investors think this indicates that the Fed will not cut interest rates as aggressively in the near future.

South Korean GDP: Underwhelming AF

Samsung, Hyundai, and BTS. South Korea always outdoes our expectations regarding high-tech products, transportation, and music. The same can’t be said for its latest GDP figures. 

According to a Reuters Poll, economists expected a 0.5% increase in GDP for the third quarter. On Thursday, October 24th, 2024, the Bank of Korea announced a 0.1% rise (FYI for non-accounting majors: 0.1 is less than 0.5). 

 Private consumption and corporate investment rose by 0.5% and 6.9%, respectively, signaling greater domestic economic confidence. Imports rose 1.5%, while exports contracted by 0.4% – a net negative contribution to GDP. (Wall Street Journal, Reuters)

Export contraction is the most concerning aspect of October’s GDP figure. This is because exports account for roughly 44% of South Korea’s GDP (Statista). South Korea’s largest export is electrical machinery and equipment. This category includes integrated semiconductors, which have seen a massive boom in demand due to the growth of AI (WSJ); however, outside of such AI-related categories, export growth faces friction due to China’s increasing innovation, the high-interest rate environment, and global trade restrictions (Financial Times)

Over the long-term, South Korea’s economy has a bleaker future. The fertility rate is 0.78 births per woman, which is well below the replacement rate of 2.1 births (Think Global Health). With fewer young people, a decline in the working-age population is inevitable. Consequently, the nation’s total tax base would be reduced, straining funding for the social services necessary to support an aging population. Future generations must also shoulder the nation’s ever-rising debt ceiling (Hankyoreh). 

Striking a Chord: How Boeing's Labor Dispute is Shaking Up the Economy

Boeing’s most prominent union turned down a tentative labor contract last Wednesday by a large margin, thus prolonging a damaging strike that led to a $6.1 billion loss. 

In the Boeing case, the unions involved 33,000 workers who had turned down the second labor relativity contract, thus extending the strike to close to six weeks. This impacts not only the workers themselves but also employment in the regions and the whole country. 

Labor issues like painful union protests inside key Boeing companies, which happen occasionally for any reason, affect the employment Marketplace, hence putting pressure on the regular financial operations of the local employment needs and businesses – the workers are part of these local businesses who depend on Boeing daily.

Since the start of the strike, manufacturing one of its most important aircraft, the 737 Max, has been hampered. It has affected industrial production per se and can spread through the economy, affecting aviation, defense, and manufacturing industries mainly. If such production delays persist, it may affect the gross domestic product of the United States since the company is a leading industrial firm. Delays in the supply of planes will impact airlines, supply chains, and international buyers and lower revenues for Boeing and allied sectors.

Primary among them was the call for an improvement in wages and conditions of service, such as calling for the restoration of a defined-benefit pension plan, among others. 

There will also be an interruption in trading and exports can also be seen depending on the intensity of a strike in a country where Boeing was expected to deliver planes since transactions may be sophisticated for the company to handle with a strike on the other hand. Delays of such orders may cause contracts to be lost, and the consequences are obviously bad for the United States economy.

Namely, one should not underestimate the negative consequences of the Boeing strike on the US economy. It is critical to note that this strike also reflects the deteriorating gap between corporate earnings and working wages, as well as workers’ desire to challenge the stagnated wages they receive and losing important benefits that they are unable to receive in the current rising cost of living. Even though the economy has benefited for some time only, the union workers are fighting for their portion of the company’s success – it is because Boeing recently posted a $6.1 billion loss due to the wrong management and operational inefficiency.

TECH

Arkansas Is Going Lithium-Crazy — And It Might Just Pay Off

In an unexpected turn of events, Arkansas is gaining attention for a big lithium discovery that could reshape the U.S. battery landscape. Yes, Arkansas—the state known more for its BBQ than electric vehicle (EV) batteries—is sitting on significant lithium reserves in underground brine reservoirs. On October 23rd, the conclusion of a study conducted by the United States Geological Survey (USGS) estimated that 5-19 million tons of lithium sits under the southwestern region of the state. This recent find has the potential to make Arkansas a key player in the EV revolution, as demand for the metal is skyrocketing.

So why all the fuss? Lithium is a critical mineral for the batteries powering our phones, laptops, and especially EVs. As the demand for EVs grows, so does the need for lithium. Traditionally, most of the world's lithium has come from South America and Australia, making U.S. automakers reliant on complex, costly supply chains and vulnerable to disruptions. Bringing production stateside could change the game—and Arkansas might just be the dark horse we didn’t see coming.

Economic Impacts

An event like this would make any economist excited, to say the least. A local lithium boom means new jobs in Arkansas, especially in mining, refining, and tech-based roles supporting lithium extraction. Lithium processing facilities and logistics hubs could increase, driving infrastructure improvements and likely injecting millions into the state’s economy. If successful, Arkansas could attract big names in the EV and tech industries, putting itself on the map as a mineral powerhouse.

However, it’s not all smooth sailing. Extracting lithium from brine is complex and environmentally sensitive. The preferred method, Direct Lithium Extraction (DLE), is more eco-friendly than traditional mining but is still water-intensive. Arkansas will have to navigate regulatory hurdles and environmental concerns as production ramps up.

In any case, the discovery highlights a potential shift in U.S. lithium independence. For Arkansas, it could mean a new era of economic growth—and a chance to cash in on the electrified future.

How Could Trump’s Proposed Policies Affect the American Consumer

Many economists aren’t too convinced that Trump's proposed tariff policies will be better for the U.S. and especially not for the American consumer. Trump’s “current” proposal includes a 60% tariff on Chinese imports and up to 20% on imports from other countries. Even if these proposals are flippant, the suggestion represents a dramatic shift in U.S. trade policy that could severely impact both the American technology sector and broader consumer welfare if Trump wins the 2024 election. According to Kimberly Clausing and Maurice Obstfeld in a recent paper for the Peterson Institute for International Economics, these new proposals would apply to approximately $3.1 trillion in imports based on 2023 data. This is more than eight times the volume affected by Trump’s previous tariff policies. This is not to mention the forthcoming retaliatory tariffs expected to be levied against the U.S. consumer if Trump is successful in his presidential bid. With EY-Parthenon’s chief economist Gregory Daco making the argument for Martin Wolf in the FT that “the retaliatory measures they would induce would cut 1.2 percentage points from GDP growth in 2025 and 2026 to 0.5 per cent and 0.8 per cent respectively.”

The impact on the American tech industry would be particularly severe due to its reliance on global supply chains and imported components, particularly from China. A 2019 International Monetary Fund (IMF) working paper found that tariff hikes generally lead to higher unemployment while having minimal effect on trade balances. This is especially concerning for our tech sector, where disruptions to semiconductor production connected to Asia and Europe and other global critical manufacturing processes could undermine America's competitive position in an industry already grappling with supply chain challenges. A simulation from The Peterson Institute suggests these tariffs might actually increase the trade deficit, as the Federal Reserve would likely raise interest rates to offset inflationary impacts, causing the dollar to rise and making American tech products less competitive globally. Tariffs are inflationary policy.

The impact would be both regressive and substantial for consumers, particularly those interested and required to purchase and use tech products for their work. The proposed tariffs would function as a selective sales tax, disproportionately affecting goods (consumers) rather than services, with middle and lower-income families bearing the heaviest burden. An ITEP estimate shows that families in the bottom fifth of earners could see their real income reduced by nearly 6%, while middle-income families face reductions of around 4.6%. Beyond direct consumer impacts, retaliatory tariffs from our allies and trading partners would likely trigger a cascade effect through global markets and the average consumer's pocketbook. These policies could lead to fragmented supply chains and higher prices across the technology sector (and the global economy at large), affecting everything from smartphones to home appliances while simultaneously restricting market access for American tech companies in international markets crucial for their success.