In the wake of China’s shockingly poor export numbers published yesterday, the IMF has warned that the world faces an increasing “risk of economic derailment”. They are pushing for immediate action to boost demand. Since you and I – the consumer – will not jump up and rush to the shopping malls on their say so, they are clearly looking for governments of the larger economies to do something…. Or perhaps I should say.. do something more. In any case it’s a sure bet that they’ll be lowering their growth forecast for 2016. The IMF was followed up by the OECD which observed that growth is slowing in the US, Canada, Germany, Japan and the UK. However as I mentioned yesterday, there are eminent economists now stepping forward to argue that all of this pessimism is a bit overdone. I would summarise all of this by concluding that there is a big debate amongst economists and institutions about the state of the global economy. Not particularly unusual amongst the practitioners of such an inexact science. There is no doubt that the world is having to adapt to a scenario where the Chinese economy has become a major exporter of negative news. But I still maintain that growth remains solid if not spectacular in parts of the advanced economies.
In all of this, it might have been easy to miss the speech made by Fischer, second in command at the Federal Reserve, on Monday. He suggested that we may just be starting to see the first signs of an increase in the inflationary impact of a tighter labour market. I’m not exactly sure where he is seeing the evidence, but if he is correct then it is probably encouraging for those within the policymaking board who would like to raise interest rates a few times this year. It is however extremely unlikely that anything will be done at the March 15 – 16 FOMC meeting. If you weren’t aware of it, that’s the focus of the markets at the moment. Most expect the Federal Reserve to present a more dovish outlook for the US economy next week, so it is unlikely that we’ll see much in the way of a dollar rally until after the meeting at least.
As I suggested even before the presidential elections in Nigeria last year, the new administration, presided over by a northerner would likely see increasing successes against the Boko Haram insurgency in the north, but more failures against those who would disrupt the pipelines in the Delta region. So I read with not very much surprise, an article in the Financial Times remarking at renewed waves of violence in the Delta region – if it’s not clear to you, the Delta region is in the south of Nigeria. It is unclear how much of Nigeria’s oil production is at risk, but the simple conclusion is that this will not be beneficial to the Nigerian economy in anyway shape or form. This stuff couldn’t be happening at a worse time!
My general view at the moment is a stabilising market after the turbulence at the start of the year. We will need to get past next week’s meeting at the FOMC before a tone can be set for risk sentiment in general and currency markets in particular. I continue to see the dominant trends as being a bias towards a stronger dollar and recovering emerging market currencies.
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