The Leather Pipeline - 22.9.15
Macroeconomics
In terms of politics and economics, the world has been quite interesting the past two weeks. Several emerging markets are facing a serious downturn in their economies and the uncertainty about interest rates in the US is weighing on currencies.
The situation in China remains uncertain. Trust in the official statistics is fading and this results in speculation regarding the world’s second-largest economy.
Some analysts are unhappy with the Chinese government’s policies and say control of the media and market intervention are not inspiring confidence.
In Europe the headlines are dominated by the hundreds of thousands of refugees arriving via the Mediterranean by boat from Africa, Syria, Iraq and the Balkans. Most are trying to reach central Europe and Scandinavia. It is obvious these countries cannot manage the challenges related to an excessive number of people and this is now causing tension within the European Union. Members cannot agree on how to house the ones who have already arrived. These tensions might be an even larger challenge to the EU than the debt crisis ever was.
So far, the financial markets have not realised the massive threat the situation means to the European economy. Not that it will harm business, but social tensions will certainly have negative effects on the economies, not to speak of the additional costs that are going add to many already problematic national budgets.
The stuttering economy in China is also a potential problem for exporters that are so important for many countries. Many experts believe India could replace some of the Chinese business over the next years. However, we are less optimistic and see India on a good track but not having the short-term potential to become the locomotive China has been over the past two decades.
Last but not least, people have been desperately waiting for the decision of the US Federal Reserve regarding the next step in its interest policy. Observers were divided on whether they would raise interest rates. Finally, the decision was taken last Thursday to leave interest rates unchanged. It took almost a day until the markets digested the consequences.
On one side is the fear that cheap money is going to continue to inflate asset bubbles. Holding interest rates low means more investment into stock markets and real estate. On the other hand, people are unhappy that the Fed is watching international conditions rather than taking a national decision. The general state of the economy in the US would have allowed a moderate interest rate hike, at least in the opinion of most economists.
Most stock markets fell significantly the day after and the concerns about the global economy are rising. The oil price rebounded pretty well over the period and has gained an average of about 10% to 20% from the lows, despite the outlook that oil price will remain negative with excess supply.
