How much more can markets digest?
Inflation worries, near-record oil prices and fears of further bank losses have led to a sell-off of shares across global stock markets.
Key share indexes in India and China both fell 3% while Japan’s main index fell for its ninth consecutive day for the first time in four years.
In Europe, the FTSE 100 fell 2% while Paris and Frankfurt saw similar losses.
Lack of confidence also hit US markets, with the Dow Jones Industrial Average opening down more than 100 points.
Banking and airline shares were especially weak, the former hit by talk of further sub-prime related losses.
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Is all the negative publicity around China over the last few months truly justified? If you look above the surface the answer may be yes. However much change in happing in China below the surface as well. For example China is increasingly opening up to international media: BBC website ‘unblocked in China’.
Although this great initiative there is still a long way to go for complete freedom of speech in China: Stories China’s media could not write. Nevertheless, generation Y in China seems to have much more in common with generation Y in the West as initially thought by most Westerners: China and its Talent, and Modern China.
From a macroeconomic perspective China is well positioned to live upon its potential somewhere within a decade and half a century. Thus somewhere between the medium run (>1decade) and the long run (>half a century) source.
On the medium run the supply side (technology advancement, capital usage, labour force skill fullness) matters more then the demand side (consumer confidence, interest rates).Taking in account the aforementioned, the future seems to be bright cos of the entrepreneurial spirit of China’s generation Y: China’s young entrepreneurs.
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Today is the 10th anniversary of the agreement that launched the single currency. However, residents of the first 12 EU states that adopted the Euro didn’t begin using Euro banknotes and coins until 1 January, 2002.
When the euro was launched there were plenty of people who thought it would crash and burn. Ten years on, its role as a global currency is secure, even if it hasn’t achieved everything its founders hoped such as higher living standards (per capita income) and less divergence between national economies. But it has achieved macroeconomic stability and financial stability when reflecting to the recent credit crunch.
There are now 15 European countries who are members of the Eurozone, with a common currency, the Euro, and a single interest rate set by the European Central Bank (ECB). They make up 72% of the EU’s GDP. Click here for the Eurozone in figures.
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The International Monetary Fund has come out with its latest set of forecasts of the world economy. The report says at one point:
“The IMF staff now sees a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009—equivalent to a global recession.”
Since when is 3% growth equivalent to a “global recession”? According to my textbook, periods of negative GDP growth are called recessions.
By this “new’ definition, the world economy has been in recession 1980-83, 1990-93, 1998, and 2001-2002. In other words, 11 out of the last 28 years. There are no negative years of world growth.
Here are the IMF’s latest world growth numbers, and forecasts out to 2013.
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UBS AG together with Citigroup and Merrill Lynch are the top three losers of the US subprime mortgage crisis, together they wrote down US$106 billion to date.
During UBS’ annual meeting on Wednesday April 23rd in Basel, shareholders were asking just one question: How did UBS manage to lose $37 billion betting on American mortgage-backed assets, battering its core capital and share price in the process?
The UBS internal investigation report on the write-downs gives three broad explanations for the bank’s woes. The investment-banking arm’s preoccupation with growth, the reliance of the control team on flawed measures of risk, and the culture of the bank. A more detailed explanation on all three causes can be found here. The credit squeeze is graphically explained by the Financial Times here and by the BBC here.
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Oslo (Norway) is the priciest city in the world to live in according to the Economist Intelligence Unit. In its latest twice-yearly index of over 130 cities, in which 160 items are assessed, Norway’s capital has been the costliest since 2005, when it toppled Tokyo from the top spot.
European cities dominate the list, reflecting the weakness of the dollar. New York is still the most expensive city outside of Europe or Asia, but it has slipped from 28th to 39th in a year. Relocating to Latin America or India would get you a lot more for your Euro.
The highlights of the ranking can be found here. More on the methodological approach of the conducted survey can be found here.
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There’s a paradox in Asian markets, according to Rafael Nam of Reuters. Balance sheets of Asian companies look like they’re in good shape, yet the cost of insuring against debt defaults by these businesses is even higher than it was a decade ago, during the Asian crisis. That makes life harder for them, but it could create an opportunity for investors.
In this case, the only rational explanation seems to be that investors - who are ultimately the ones doing the insuring - simply prefer to keep their money in highly liquid securities denominated in dollars or euros. Yet to the extent that investors’ preferences for the United States and the euro zone come from habit rather than from economic fundamentals - and habit is undoubtedly a part of it - the opportunity in Asia is real. So, who will take advantage?
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Gold traded above $1,000 a troy ounce for the first time on Thursday March 13th. Read more on The Economist here and here.
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BusinessWeek has written a report on crude oil surpassing $110 for the first time on Wednesday March 12th.
Please also visit my previous post on “What’s next for oil prices?”
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Today, (February 1st) Microsoft Corporation, the world’s biggest software maker, made an unsolicited $44.6 billion offer for Yahoo! Inc. to challenge Google Inc.’s dominance in Internet search services and advertising. The proposed deal, which would transform the software and internet-services industries, values Yahoo! at $31 a share, a 62% premium over the closing price on Thursday. What will the outcome be?
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How much more can markets digest?
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