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Hi John, here's what you need to know for November 19th in 3:13 minutes.

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• Saudi Aramco’s initial public offering looks set to value the company at $1.7 trillion
• Morgan Stanley believes emerging markets will lead a global economic recovery early next year

Desperate Measures

What’s Going On Here?

Oil firm Saudi Aramco came up short of the $2 trillion valuation it was aiming for in its forthcoming initial public offering, but it can still walk tall: the $1.7 trillion it now wants will still make it the world’s biggest public company (tweet this).

What Does This Mean?

Aramco, which extracts and refines Saudi Arabia’s oil, is wholly owned by its government. But that’s about to change: the state is selling off 1.5% of the company to investors.

Advisors initially estimated the company could be worth between $1.6 and $2.3 trillion. But it seems international investors think that’s crude arithmetic: they reckon it’s worth nearer $1.5 trillion. Aramco, then, isn’t bothering to persuade them to buy shares. Instead, it’s going to rely on ordinary Saudi investors, who will be able to borrow huge sums from local banks to buy in. Their support should bump it up to between $1.6 and $1.7 trillion, and help it raise over $25 billion – beating Chinese retailer Alibaba to become the biggest IPO ever.

Why Should I Care?

The bigger picture: It’s a slippery slope.
Over in Russia, oil producer Gazprom Neft reported a third-quarter profit that was 20% lower than last year’s. Lower oil prices caused by an oversupply of American shale oil were to blame. They’ve affected the entire industry, but they might actually be good news for Aramco: its efficient production means it can still make a profit at lower oil prices than its competitors. And that could lead investors to sell their current oil company stocks and buy Aramco instead.

For you personally: The price isn’t right.
As Aramco’s learned, it can be hard to know how much a company will trade for when it makes its shares available. It depends what other investors think it’s worth, which can be hard to guess. That's one reason prices can plummet on day one of trading – and it might explain why Warren Buffett has called buying an IPO “stupid”…  

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A Recipe For Success

What’s Going On Here?

On Monday, Morgan Stanley whipped up an optimistic prediction for the future: it reckons the start of next year will provide all the ingredients we need for a global economic recovery.

What Does This Mean?

The past two years have seen global economic growth slow from 3.8% to 3%, in part because of the US-China trade war. But Morgan Stanley thinks those tensions could be about to sweeten: there were reports of “constructive talks” over the weekend, and investors feel increasingly convinced a deal will be reached. Lower tariffs will work in both countries’ favors – as well as those caught in the crossfire, like Germany.

Morgan Stanley also thinks interest rate cuts could have tasty consequences: rates in the US were slashed this year after a series of rises, and China may do the same to its main interest rate on Wednesday. Low rates tend to encourage companies to borrow and spend, which drives economic growth. Mix ‘em with trade peace, then, and the bank reckons you’ve got the recipe for an economic recovery in 2020’s first quarter.

Why Should I Care?

For markets: See past the States.
The US does stand to benefit from a trade agreement, but as the country’s in the “late stage” of its longest-ever expansion, it doesn’t have that much room to grow. Morgan Stanley thinks investors would be better off investing in emerging markets, which have been badly affected by reduced Chinese demand for their products. A détente should reverse that, and their economies – which, unlike the US, still have lots of growth potential – could soar.

The bigger picture: Don’t get too comfortable.
Morgan Stanley warns there’s a big risk things could end up worse than it’s predicting. Trying to forecast the US president’s moves is a dangerous game, and if further tariffs appear in December, the recovery could be pushed into the second half of 2020. Unless, of course, November’s US election ends up spooking markets…

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