Finally some good economic data! Manufacturing rebounded in the UK from recent lacklustre results. Data published yesterday showed year on year to the end of January manufacturing declined 0.1% versus a 1.7% decline to the end of December, economists had forecast -0.7%. To be honest it’s good news but not stunning. No doubt the weaker sterling has added a bit of competitive vigour to UK manufacturers, this is likely to be a benefit to the UK economy for some time to come. I’m certain Governor Carney is counting on that!
There’s an interesting article in the Financial Times about record Chinese investment in Europe. When you consider over the last half decade that China has made a big push investing in Africa, it is easy to conclude that China is trying to take over the world. I believe Chinese overseas investment is actually a symptom of the weakness at home and uncertainty about policies and the renminbi going forward. This is not overseas investment so much as capital flight and it reminds me of the late 80s when Japanese corporations made huge flashy investments in the United States, buying historic buildings and marque companies. Remember what happened after? A malaise that the Japanese economy has never quite been able to shake off. Always watch what the natives do, they usually have a deeper understanding of the risks in their own country (China) than the rest of us do. The Chinese are fleeing with their cash.
Today is a big day in the Eurozone – scratch that – it’s just a big day. The ECB announce its monetary policy decision and afterwards we get the usual ECB President’s press conference. We’ve been here before. In December, Mr Draghi disappointed markets by falling some way short of expectations with regards to the stimulus to be applied to the Eurozone economy and EUR/USD rallied sharply. Today is a chance for him to correct that. Otherwise he is in danger of becoming the boy who cried ‘Wolf!’ Quite apart from the Eurozone being one of the largest economic regions in the world, in a way Mario Draghi is making a representation on behalf of all central bankers. The markets are increasingly fearful that central banks are becoming less effective at adding stimulus into the global economy. We have already crossed the zero bound in a number of major economies, not least the Eurozone and Japan, and we are still getting uninspiring outcomes. I mention this, because the market’s reaction could be thematic as a consequence of these fears. In any case, President Draghi has made a series of pronouncements over the last few months which indicates that he stands ready to do more to aid the Eurozone economy. Now he has to show us what that means. You’ll know very quickly what the market thinks. If he’s successful the euro will weaken significantly and stocks will probably rally. If he disappoints we could see the reverse, particularly with regards to the euro.
Finally, if we weren’t already expecting it, the data published by the Nigerian Bureau of Statistics indicates that the Nigerian economy has slowed. Quite a bit actually…. In Q4 2014, the Nigerian economy grew almost 6%. This time around the (Q4 2015) the number is just a smidge more than 2%, and this is in comparison to Q3 2015 when growth was closer to 3%. We don’t know where the trough is. We don’t know if we are past the worst. But in the absence of sensible economic policies it’s easy to be pessimistic. The naira has stabilised in recent days, but it’s hard to imagine any justification for naira appreciation right now. Particularly with news about damaged pipelines…
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