Economic Summary for the week ended 3rd Aug 2015

All eyes were on the US Fed’s FOMC statement last week, in which the smallest change (the addition of the word ‘some’ before ‘further improvement in the labour market’) meant the most to economists.  Janet Yellen and her FOMC want to see greater labour market tightening before starting to hike rates – but what exactly will they be looking for?  One measure, the number of job vacancies (JOLTS), has hit its highest point since the inception of the series.  Before the financial crisis, the Fed’s policy rate moved with the JOLTS number, however the past seven years of near-zero interest rate policy and rising vacancies has created a massive gap between the two figures.  Next week’s new JOLTS release could add one more data point to the Fed’s ammunition for a September hike.

Economic Summary for the week ended 28th July 2015

As the gold bear market continues, the precious metal suffered a battering in speculative trading last week, breaking through the $1,100-an-ounce support level. Bullions ($1.7bn to be precise) melted away in a matter of minutes on futures exchanges in the US and Shanghai whilst Europe slept last Sunday, with the sell-off continuing through the week. The gold price has dropped -42% since its market peak in 2011, after investors flooded into the “safe haven” post financial-crisis. With a positive outlook for global growth, a rapidly strengthening dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes. Perhaps the biggest mover of the market though, came from the People’s Bank of China declaring its current gold holdings were much less than analysts expected. Gold investors can no longer sit in their gilded cages as the price of this asset moves towards record lows.

Economic Summary for the week ended 22nd July 2015

The first half of the year has been good to oil producers as WTI rallied 11%, after falling 47% over the course of 2014. However, the rollercoaster ride in oil isn’t over yet. Despite some signs of correction, supply continues to flood the market. Saudi Arabia produced crude oil at a rate of 10.5m barrels per day in June, its highest in recorded history (since 1962). Last week’s deal with Iran is likely to add yet more fuel to an already oversupplied fire in the coming quarters. Lower oil prices will hurt producers, but, on the whole, the global economy continues to benefit from these lower energy costs. Hold on tight through the turbulent times ahead.

Economic Summary for the week ended 14th July 2015

Wimbledon marks the start of the British summer but as the weather heats up, the UK economy is cooling off. In the Summer Budget 2015 last week, George Osborne introduced various supply-side measures including a Living Wage Premium, which could encourage corporates to improve their labour productivity. In response, the UK Office for Budget Responsibility revised its forecast for unemployment back up to 5.4% (after revising it downwards to 5.3% in the March Budget). But this downward revision stems partly from the anticipated increase in productivity - the forecasted average for 2015-2019 was revised upwards by 0.1%. The key to economic recovery in the UK is the return of productivity growth to a sustainable level. When, or rather if, output per worker returns to its pre-crisis trend is difficult to predict. Yet if achieved, game, set and match.

Economic Summary for the week ended 6th July 2015

In recent weeks the Chinese stock market has hit the headlines for all the wrong reasons. Major indices have fallen significantly, with the shanghai composite, for example, is now down over 20% from its recent peak. Such was the scale of the run up, key indices of Chinese equities remain up by double since the start of the year. But where to now? Although there were pauses on the way up, history suggests that now the tide has turned, further downside awaits. This latest evolution in share prices bears a striking resemblance to the rally in Chinese equities that started in 2007 and lasted throughout that year. The similarities are so great that the correlation between the two series is almost prefect. Buyer beware.   

Economic Summary for the week ended 23rd June 2015

It came as no surprise that the Norges Bank voted to cut its policy rate by 25 bps to a record low last week of 1.0%, one of the highest policy rates in Europe. The economic challenges Norway faces are rather different to its neighbours: firstly, Norway is the only net oil exporter in western Europe; secondly, its housing market has boomed after the crisis compared to the European union. With a depreciating krone, increasing consumer prices, and rising house prices, a rate cut may seem rather counter- intuitive. Norway has weathered the storm so far but with signs of an imminent slowdown in the oil industry pushing down Norway’s 2015 and 2016 GDP growth forecasts, further rate cuts are expected from September into 2016.

Economic Summary for the week ended 1st June 2015

Volatility in bond markets has been heating up - in fact, yield fluctuations last Thursday were some of the biggest in 2015. This week’s chart shows the 1 week rolling volatility of the German 10 year Bund yield, which spiked after European Central Bank’s President Mario Draghi confirmed on 4 June that his stimulus programme is working to boost the Eurozone economy. The international Monetary Fund cut its 2015 GDP growth forecast for the US form 3.1% to 2.5% on the same day. It may be the start of the summer, but investors certainly aren’t taking it easy as they position themselves for perceived shrinking divergences in the world’s largest economies.