Super Summer, Super Thursday, Black Monday & End of Brazil's Commodity Cycle

Thursday the 6th of August signalled no change in Bank of England’s interest rate (Currently 0.5%), China’s central bank getting ready to move its weight in the direction of returning to devaluation, in order to boost exports, and from the other side of the Pacific, the looks of the US dollar strength year on year 20% bringing thoughts on the soon to be basis rate increase by the Federal Reserve.

S&P 500 Turmoil 

The major topics to be highlighted here are miscommunication and fundamental problems in the announcement of Central banks in the recent affairs of August.

Carney’s MPC

When double the information is released, as well as Mark Carney’s patented monetary trick of forward guidance, a market feels more reassured.

An 8-1 vote amongst the MPC committee, reaffirmed the near whole agreement of the current state of inflation targeting. Not only was the move concrete, it marked also the strength of the Canadian central banker’s hold at sailing the market through unknown hotspots arising.

The Forward guidance Mark Carney delivered was however the thought of many analysts; the UK economy is ‘in need in care’. The absolute truth and gut feeling for the majority, after an interesting summer change in growth levels, they know things could soon spike like a thunderbolt from the heavens, right down to the ground.

Reasons?

Most greatly mentioned is falling commodity prices, leading to lower inflation, also the continuing unknown course within the Euro-zone area, Russia and the slowdown in growth within the Far East and emerging economies. Hopefully due to this Carney could hopefully see the weighing scales to dip on either of the following two.

•  Most consumers will decide to save, increasing MPS,
• Consumers will be driven to consume more, due to the fall in production, fall in commodity prices, the price of goods will become less, keeping inflation positive.

As much as the second will help GDP, the first is more of a key issue, when it comes to either stagnation or end of the growth cycle.

Far East Volatility

Last week has been quite the roller coaster ride as Asian Stocks bore a significant plunge in value on Monday, then making a deep recovery by Thursday; Is this the end of Chinese volatility?

Vix Volatility Index S&P 500 

At the beginning of August, The Peoples Bank of China conducted devaluation of their international yuan currency, in order to help boost exports to deal with the crash in the Chinese markets. Though the delivery of the information was poor. The sudden unexpected change in the exchange rate policy, led to market turmoil that only calmed after clarification by the PBOC.

“China will maintain economic operations within a reasonable range”

The initial feel by the markets led to a global selloff of risky assets, as they believed it was a reaction to the abrupt deterioration in Chinese growth.

In the following days, China clarified the message by ensuring that the move they had made in devaluation was designed to

“Enhance market-orientation and benchmark status”.

The acknowledgement of poor communication had the effect of calming the markets, as the above statement gave light to moves the PBOC had made. First their purchasing of currency, the knowledge of $3.6Tr USD being in reserve, as well as US federal reserve rate hikes being on the  horizon soon enough. Domestically also the Renminbi’s real exchange rate has appreciated >25% since 2007.

Forecast

The gut feeling of analysts and my own personal assumptions, are that we can expect a steady slowdown in Chinese growth. This of course, leading to weaker demand in commodities, thereby having a knock-on effect on the Australian economy. At the end meaning, that portfolio diversification is crucial and that we should expect more surprises from China, as they grapple to deal with a crucial situation with their economy.

Economic Forecast: The Weather in Rio is looking bleak

For the body of Christ that towers over Rio, the Brazilian government also sees the world looking down. The country faces the end of its commodity growth cycle; and if that was not enough huge corruption, declining consumer confidence and preparation towards the Olympic Games.

Due to the rise in supply of oil, slowdown in emerging market production levels, and weak capital markets, Brazil is facing a dire position. The major fall of the Petrobas scandal, in its corruption and rescue cost to the economy, has only contributed more to the slowdown in economic growth and widening of the Brazilian deficit.

The situation, began by Brazil revaluating its surplus targets that sparked a selloff of Brazilian assets. Soon enough it led to an announcement by Standard & Poors, warning of the investment status being downgraded.

Brazil is desperately trying to take control of its inflation. In the last seven meetings of Brazil’s central bank, there has been an increase in interest rates each time, which now stands at 14.25%. Coupled together with two consecutive quarters of declining GDP, South America’s largest economy is now in recession.

Central Banking 2014 Upgrades & Arab Uprising Part II

Good evening to all

The month of July has been rather amusing in market volatility and global economic indicators balancing out each other, mixed in with the typical political cocktail of civil unrest.

ECB and Bank of England Harmony

 With the markets losing some of the power and confidence in tactic decision making, today they looked to the words of Mark Carney (Bank of England) and Mario Draghi (ECB). The Outlook of both and interest rate decision remained unchanged, though new weapons such as market guidance are becoming more weighted on market volatility.

A Central bank’s words are one the most secretly kept letters before an announcement, as these words are the recurring power mover of any market. Previously a central bank would never try to give their opinion on forward assumptions of market growth, though the new Bank of England governor changed the norm.  So these words are now a typical aspect for market makers to expect in the medium term.

Liberalisation of the ECB was also in discussion; the idea of releasing the minutes of the ECB, could be seen as a more accurate way of the market valuing the future. Though in the Gothic economist’s opinion this will only produce more wild fire, and take less value of the central bank’s overall decision.

Vertigo Markets

So with the last month being pinned to fallout part 2, of the financial crisis shows that the wounds slowly are healing, for now... The patient is still in intensive care.

The redbull juice of quantitative easing, unfortunately could be working. Grumbles for the Gothic economist, as his positive monetarist views against Keynesian borrowing malarkey as being the devils work could succeed, as the S&P climbed today. However... These growth patterns with an over capitalised market, may bring future worries, to the mix.

Today the US market saw growth patterns that had not been seen since 2011, amongst these positive movements, there has also been frailness at the midpoint, due to fears of reduced growth within in china and liquidity worries for domestic and medium sized businesses.

The Brent crude benchmark has been on rapid brinks of decline and ascension. The Chinese downturn in GDP forecast, and the US growth results have been players on this. Since July continuing into August has seen many Middle Eastern civil problems affect oil output, and with US sanctions on cutting Iranian oil exports have been also implemented this week. Hence this fall going into the winter season for the northern hemisphere could see prices above $112 a barrel.

Positives that can be seen are controlled inflation position within Europe and US, also boosted exports in some of the sovereignly constrained Euro zone countries.

Burn Baby Burn

The Middle East and North African political process is still far from maturing in stability. With Nigerian tensions, the Egyptian political problem and summer maintenance schedules, the fall could haunt the price yet.

Libya has been flooded with protests and shut down of its ports, leaving the OPEC state with no oil and in some cased more than 50% fall in refining, giving August and September contracts a rise.

The markets could possibly become more active in their discontent with the Arab uprising, as foreign direct investment thoughts to Africa becomes less desirable.

The biggest problem is that due to these cuts in production, you cannot stop oil extraction straight away, so all you can do is flare. The burning of fuel in some parts of Africa have forecast to total over $100m a month, and with Flaring already being a major issue within Northern Canada, more investment and maintenance is demanded within the Oil & natural gas sector.

This week saw oil spills in Thailand, Nigeria and evidence of manufacturing faults with an Exxon pipeline in Canada. Enough said on future prices and environmental damage.

Closing Black Words

The energy sector will continue to climb, as middle east tensions are predicted to continue , if  US continues to give out low unemployment data and growth support. Though this highly unlikely, and in the fall, markets will become more volatile, as the deadline for the US borrowing limit comes closer.

Buy while you still can...

Bad US timing in Africa as Resource war is in full swing

As Obama makes his first real appearance in Africa, has he come far too late? As the president touched down in South Africa, he was greeted with more welcoming protests than the warmth he may have encountered on his trip to the G8 summit in Northern Ireland.

Africa itself is the new Jewel in the eye of slowing down major economies in the northern Hemisphere and where strategic economics may now work with African ways of life, which was unheard of back in the 80s-90s. Holding vast realms of natural resources and economies egger to grow, China has been making the most progress out of all nations, though has also been finding out, that Africa is not always easily bought and tapped.

Late jump from the gate

The Current Obama administration did not make an appearance in its last term, and through this the US has been living off the success of the Clinton administration’s duty free policy on African goods and the Bush administration’s poverty donations, though there is still nothing yet from Obama.

As he was escorted through Cape town in his usual armed battalion, including the support of the South African’s catalogue of Gorilla proof Jeeps, the president had come at a time of when millions of the continent’s inhabitants prepared for the mourning of Nelson Mandela, as well the general view of that Barak Obama “Another US President”. This comes from the Geo political position most south Africans see Mr Obama lying in. From the Libya Crisis and toppling of the Gaddafi regime last year, the involvement of more US drone aircraft in Africa and the current interactions and geopolitical moving in Syria.

Contractual ease by China

China has been conducting much more investment, as it saw the emptiness of foreign competition implementing strategy on the continent. China is finding it easy business doing deals in Africa, as a pragmatic position is taken for politics. There are no political improvements linked to any investment deal which may include a more stable government as some nations saw with previous western deals, giving much better political face to china.

Also with weak colonial might at the moment, no one is in the position to lecture China on its resource and foreign investment policies at this current time. Also with the increase of inflation in China, it is only be a matter of time until manufacturing is transferred overseas to Africa in order to reduce production costs.

Though making deals with Zimbabwe and Sudan hasn’t helped other sides of Chinese interests and shows more importance to business relationships than China’s social responsibility.

DIY Africa

The main issues with Africa are usually down to a few big factors where one or more is active:

• Political Corruption
• Civil Unrest
• Inadequate Infrastructure

The oil industry is probably the wisest of the high risks from African operations. Companies such as BP and Exxon Mobil have dealt with losing oil wells due to political tensions, such as in Somalia; workers being captured and ransomed off and the sabotage from local greed and jealousy, which is the most interesting one in my opinion.

In Nigeria a local communities jealousy over another that has a well contract from an oil firm, will usually result in pipes being cut, or well heads being set ablaze. The market for D grade black market oil is then created through tribal gangs stealing the unrefined liquid and in the meantime the environment being damaged. With Nigeria cultures you are taught not to share or help, so other communities do not work together. The only cooperative relationship that usually occurs is when cleaning companies pay gangs to destroy wells in order to get cleaning contracts.

Energy shortages are also a major issue. Known for its mass ownership of electric generators, Africa’s civil infrastructure is in desperate need of being created.

The Future

 

 

There are certain countries such as South Africa and Angola which provide a forward vision for the Continent, with maybe only one of the three issues being faced.

As the US ranks third as trading partner to the continent, it will be rather soon that more foreign direct investment moves swiftly in. This is also contributed to the the reduction in global market liquidity seen in the past weeks, on the basis of changing Central banking monetary policy (mostly from the US) and the predicted slowdown in emerging markets. Africa due to its minerals has not experienced a reduction in investment hunger so much and with still a very large gap in market capacity across the board of sectors from resource extraction to government development projects, whilst the northern boundary has the rope pulled tighter, the centre realms of the equator look promising, just how much for Africa and more so, how will the economic transition process effect Political engineering and efficiency? This issue brought up when Libya was still continuing in conflict.

 

Tata

G.E.

The tale of two Islands in Asia

We are a week into the glimpse of China's new management board, upon the stage for China, seven suits encased with red ties stood before the world.

Mr Xi Jinping is now leader of an >80m Chinese communist party with his six new team members at the helm also, however attending the congressional announcement was former president Jiang Zemin. He was there for one reason only, to reassure the world, that as much pressure china's political system is under to become democratic, it will not cease. Mr Jiang actually got more attention due to this, compared with the new president at the congressional announcement, as Mr Xi is seen to be more open in a rational sense to changes within the political system.

This would be honey to the ears of Japan, as it announces it largest trade deficit with China, and this is not due to organic economic slowdown, it is down to a bunch of islands that Japan purchased. This has now led to negative growth in nearly two quarters, ergo Japan will be declaring a recession. Though even with a slightly easier going president, that's not to say members of the old school are not present in the other six.

Going to Behavioural and Strategic impact. The US has taken a very notoriously cunning step and in some ways it will overall benefit China. The US shifted the fire-power of 40,000 troops to conduct exercises   in the area, in a mutual indication to China, that it would standby Japan to defend it's territory, as Japan and the US have a treaty on defence of each other.
However at the same time, the US will now be overtaking Japan as largest export partner to China. So throwing a few 40,000 troops in an area to keep Japan happy for a while, whilst you take over their trading position is quite a good deal.
But it is just not the US that are conducting strategic positioning  China is producing bilateral trade agreements with South Korea, so to anyone's guess, economic pressure is fully being exerted onto the sword of the samurai. In return Japan is attempting trade agreements with the EU and Australia, regardless it will loose out.
Though it's not all sunshine and butterflies for the red flowers.
China's investor arms are going into the emerging markets, as western traders start getting bullish with their Chinese weighted portfolios. They seek non domestic protection, and as much as China racks on more tax incentives and lifts investment barriers, non of this is being seen to make a world of good; only behavioural investment sense of desperation, just making traders increase their bet values against China.

So China is plotting the downfall or economic suicide of Japan with its sustainable deficit of +200% of GDP.
Though it could be worse... You could be Greece, having to deal with your politicians not agreeing with the death dealers aka IMF and the EU, which just entered negative growth also. http://www.ft.com/intl/cms/s/2/0a35504a-0615-11e1-a079-00144feabdc0.html#axzz2CnY7xTPX

Whilst you then have to watch energy companies pay fines, of larger sums that what your country so desperately needs.
http://www.ft.com/intl/cms/s/0/555fa13c-2f46-11e2-8e4b-00144feabdc0.html#axzz2CnY7xTPX

Positive economics combined with the church of monetarism and Hayek. It lacks so much irrational emotion in these scaring areas, its hard to believe this is how economies work the best!!

Tata for now... GE

What to do??

I had no idea what on earth to write about last week...There was too much to write about!! Instead I made a draft of my views last week which I did not finish.

So the world has turned into the rule of the bond market. If you want to know what happens, look at the rating agencies a few purpose done government leaks and the market speculation.

one day this week at 13.30 the rallying of stocks occurred on the DAX bringing it up by 3% percent within minutes. Though still peripheral pressure was implemented on Europe.

The worrying thing was that the Chinese Central Bank cut deposit rates for banks as the China markets closed negative, possibly showing a new landmine that could go off on the already fuel leaking world market.

Still I think one kind of cranky positive result that has come out this week so far is that the UK economy doesn't seem to be needing to fear the rating agencies for the time being only the Strike currently occurring which is seeing huge amounts of public Sector workers affect the growth of the UK economy.