Macroeconomics

The past two weeks have been a little bit quieter than the previous ones but still exciting enough to keep everyone glued to the headlines. From a European perspective, one of the most important events was the election in Greece. As expected, the leftists won but then went into high-speed negotiations in a coalition with the extreme right. The only thing linking them is their dislike of the restrictions put on them from northern Europe under the lead of Germany, the International Monetary Fund and the European Commission. The new Greek government was immediately touring the EU capitals trying to boost their position and to test if their partners in the EU would be willing to support their ideas. The outcome is open.

The European leaders and their financial ministers are already busy with financial problems within the EU and, to make matters worse, the situation between the Ukraine and Russia has not improved. Many people think it has calmed down because it is not making headlines, but last week the conflict gained momentum and relations between Russia and the West are deteriorating. The new Greek government said they might not continue to support the common policy of the EU community in regards to the Russia in the Ukraine conflict. The ongoing cruelties of ISIS are also weakening political stability. After killing the Jordan pilot and Japanese citizens the international community is beginning to unite against this security threat.

The financial markets took a bit of a break after the fluctuations in currencies and commodity prices. Despite of many forecasts the euro stopped its decline versus the US dollar and was even able to recover from the lows close to the $1.10 level which we had after the Greek elections. However, the euro has become reasonably vulnerable again and a lot will depend on the US’s Federal Exchange policy for the second half of 2015. Rising interest rates in the States and further uncertainty in Europe would put the common currency under pressure again. In the meantime, the American economy looks reasonably strong with rising income and a pretty solid labour market.

The quantitative easing programme in Europe and the ongoing low interest rate policy in many other parts of the world continue to support stock markets and, apart from Greece, many of them continue to perform strongly.

The oil price bottomed and even rebounded. The predictions of levels of $40 for the barrel are for the moment a way away. However, energy prices are still pretty low and, for those who are able to hedge, energy costs for 2015 and beyond can be calculated at much lower levels. This is working well and comes as an additional stimulation for the global economy, because it is generating more disposable income and lower production and transportation cost.

The Asians are now winding down for their New Year holidays [Chinese New Year, February 19] which is reducing activity by quite a bit.

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