Our Market view
May 2012
Three steps forward, two steps back - The EU continues to struggle in its attempts to resolve the eurozone sovereign debt crisis. The new fiscal compact, imposing disciplined budgetary management at a national level, was ratified (except by the UK and the Czech Republic) on 2 March and will come into force from the beginning of next year. This was followed by an agreed “haircut” for private investors in Greek debt and the introduction of measures to boost the financial arsenal available to fight future sovereign default threats via bailout funds. In the wake of these events, the markets decided to grant the eurozone a grace period. However, the honeymoon ended abruptly in early April, as it became clear that these developments were barely able to put the crisis on hold, let alone resolve it.
April 2012
Japan’s new dawn? - Ever since last year’s traumatic events at Fukushima, investors have generally given Japan a wide berth. In the aftermath of that tragedy, the domestic manufacturing sector suffered greatly from a supply-chain disruption that held back production in many industries. Largely because of this, Japan’s trade balance moved into deficit last year for the first time since 1963. At the same time, exporters were hit by weak demand in key markets, such as the US and the eurozone, and an appreciating domestic currency that undermined corporate competitiveness and lowered the yen value of foreign earnings..
March 2012
In the pipeline - Ever since the 1973 “oil shock”, successive US administrations have shared one dream: to restore the country to self-sufficiency in terms of energy. Thanks to an eight-year high in domestic oil production, groundbreaking innovations in natural gas capture and lower consumer demand, that dream is fast becoming reality.
February 2012
Green shoots - For many investors, one of the biggest surprises at the beginning of this year has been the apparent rejuvenation of the US economy. Although there had been initial signs of recovery towards the end of 2011, analysts have been wary of predicting a sustainable advance, and few have yet committed themselves to the idea, but the evidence of such a development is mounting.
January 2012
Heroes and zeroes - For all European countries, the daunting task facing policymakers in 2012 is to find ways of alleviating their respective debt burdens while trying not to impact economic growth prospects too detrimentally when doing so. This is a regional conundrum with global implications. The damage done by any single national failure within the eurozone will not only be felt Europe-wide, thanks to the potential for domino-effect contagion, but also well beyond European shores, due to the unprecedented interconnectedness of the global economy.
December 2011
Not out of the woods yet… 2011 will be remembered in the financial markets as one of the most volatile years in recent history. In particular, the intensification of the eurozone sovereign debt crisis and the continued fallout from the 2009 financial meltdown engendered an investment environment characterised by wild swings in the prices of securities.
November 2011
A (quick?) recap - In late October, the EU finally addressed the thorny issue of European banks’ exposure to Greece, by agreeing that those institutions concerned take a 50% “haircut” on their holdings of Greek debt securities. The summit called for European banks to raise new capital sufficient to cover an estimated shortfall of €106 billion and take their respective core capital ratios to 9% by next June, primarily to help insulate them against future potential government defaults..
October 2011
Pandemic - The ongoing global financial crisis is now in its fourth year. Since 1945, most financial crises have arisen from excesses in the equity or property markets. The present crisis is distinguishable from previous postwar calamities in that its roots are in the credit markets.
September 2011
Agents of change - Both before and after July’s EU summit and the US debt-ceiling agreement, the major credit-rating agencies were in the headlines, flexing their not inconsiderable collective muscle to influence the outcome of both issues and showing, once again, that they have a powerful weapon against corporations, institutions and governments all over the world: the threat of a credit downgrade.
August 2011
E-bonds: a potential panacea for the eurozone’s debt ills - One of the most credible proposals for solving the eurozone financial crisis is the E-bond, a pan-eurozone government issue rather like a US Treasury bond. The idea of creating a eurozone sovereign debt market was first presented in December 2010 by Luxembourg and Italy, who simultaneously proposed the establishment of a European Debt Agency to issue such debt.
July 2011
Spend, spend, spend - While the headlines in the financial press continue to focus variously on Greece or the inexorable rise of China as an economic powerhouse, a time-bomb is ticking in the US. Still the world’s largest economy, but losing that status fast, the US has amassed a debt pile of some $14 trillion that is estimated to be growing at $40,000 per second, and for which the incumbent administration appears to have no workable plan to deal with.
June 2011
Greeks bearing debts - Having been consigned temporarily to a less-critical status, as first Ireland, then Portugal, became the focus of eurozone investors’ most immediate concerns, data revisions showing that Greece’s parlous financial condition is far worse than hitherto assumed have propelled the country back into the unwelcome spotlight.
May 2011
Beware of incoming tides - Following Portugal’s decision to go cap in hand to the European Union and International Monetary Fund for a financial bail-out, there has been much talk of a notional “line in the sand” now having been drawn.
March/April 2011
Will inflation derail the global growth train? - The recent turbulence in the Middle East and North Africa was largely unable to make a serious dent in investors’ positive outlook for global economic growth until it spread to oil-rich Libya. The subsequent uncertainty has been compounded by the resurfacing of an old adversary to challenge growth optimism: inflation.
February 2011
China’s master plan - According to recent estimates, China has some $2,850 billion in foreign reserves. This amount, which has accumulated due to the country’s status as the world’s largest exporter, is far in excess of what China needs to pay for its imports and foreign debts. But such abundance also has a downside, and while the rapid growth of these reserves has exacerbated domestic inflationary pressures, it has also created a problem that would be the envy of most other nations: how should China invest its massive reserves surplus?
January 2011
What does the future hold for the euro? - Last year’s eurozone debt crisis exposed the flaws inherent in a system that enforces monetary union among states without a corresponding fiscal union. Because the EU is a collection of independent national states (as opposed to a federation of states, such as the US), its members retain a high degree of autonomy, which necessarily means that any collective political unity can only be of a nominal, superficial nature.
