Markets Update - May 2014
The Global Economy - The global economy will grow by less than expected this year as growth in developing economies slows, The Organisation for Economic Co-operation and Development predicts.
It expects 3.4% world growth this year, down from its 3.6% November forecast. In 2015, however, it still expects growth of 3.9%. It cut forecasts for China and the U.S.
"We are still not out of the woods yet," said OECD Secretary General Angel Gurria.
However, in its report, it warned that "still-high unemployment in many countries and the subdued pace of growth in many emerging market economies relative to past norms" was likely to limit the momentum of the global recovery.
The OECD now forecasts 7.4% growth in China for this year, down from its 8.2% November forecast.
Meanwhile, the US economy is forecast to grow 2.6% this year against last November's 2.9% estimate, because of a combination of bad weather in December and October's government shutdown.
Markets Update - March 2014
China - China has set its economic growth target for the year at 7.5%, as it looks to continue its efforts to stabilise the economy. The country also set its inflation goal at 3.5%, aimed at keeping prices in check. After years of impressive growth rates, China has seen its rate of expansion slide after a slowdown domestically and in key markets. In 2013, the country grew at a pace of 7.7%, about the same as in 2012.
U.S. - Fourth quarter United States GDP growth has been revised down to an annualised 2%. Most of the drop was due to lower than estimated durables consumption, especially cars, fewer exports and lesser inventories. Durables consumption grew 2.5% in the final quarter, rather than the forecast 5.9%.
Meanwhile, business investment was revised much higher. It increased 7.3% over the quarter; the first estimate put it at just 3.8%. That offset an even larger fall in residential investment which plummeted 8.7% as existing house sales dropped off. Reductions in QE is set to continue.
US kicks bucket down the road... again.
The situation in the US remains tense as a result of the political problems in the US.
However, the markets have increased in the last few days and the dollar is quite stable. The consensus view remains that a deal to ensure an increase in the debt ceiling will be agreed. The real issue is that interest is paid on the 1st November on US Treasury debt.
The politicians are taking this to the wire as usual but even at this late stage I cannot see a default happening. This political brinkmanship in the US is now a feature of the global economy that the markets are having to become adept at handling. I believe that in time the BRIC economies will try to detach themselves from the dominance of the US in the global economy. There are already signs of this happening but it will take time.
Investor Update - the US Debt Ceiling
Were Global Markets impacted following the US Government Shutdown ?
We have thankfully seen a relatively small reduction in the global markets following the impasse in the US over the Federal Budget / Obama Care issue that has led to a shutdown of the government. It remains to be seen what the real effect of this will be over the next few weeks. I believe we are becoming used to these kind of political “shenanigans” between Democrats and Republicans, it is now the way politics is conducted in the most powerful world economy.
But this is an unwelcome threat to the global economy. It is particularly irritating as the global markets have all been improving after the reductions in asset values during the last few months. This was due primarily to the twin issues of QE in the US and the potential liquidity problems in China that have now been resolved or at least deferred.
China sneezes... will the world catch a cold ?
The underlying driver for the global economy is China which is itself is going through a transition that needs to be carefully managed but I believe it will succeed. The fact is that after a period of ultimately unsustainable growth, based upon the property building boom and the determination to rapidly expand, China is now predicting lower GDP , which is still very high by current western standards. In addition they have there are real concerns arising from the transition from a low wage ,export driven, manufacturing nation to a consumer society. This is certainly happening now but this comes at a price with deepening social problems.
The markets are reacting to that as well as recognising other key factors like the US position on their fiscal policy ( mainly quantative easing ) and the severity of the problems in Europe.
I have been restructuring my portfolios to include more US exposure and less Bonds. I have no exposure in Europe and I am still Asia centric. Ironically one of the best performing sectors has been the Japanese small to mid-cap. This is no doubt due to a weak currency fuelling exports but Japan now has in excess of a mind boggling quadrillion dollars of debt.