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The global economy is facing another confidence test as investors are fearing that monetary policy can no longer sustain otherwise ailing economies. Following arguably the worst financial crisis in history, central banks have been at the center of a jobless recovery. However, recent weak economic data amid concerns that they have used all their firepower have raised expectations of a relapse into recession. In the past five years, emerging markets riding high on a weak US dollar pulled the global economy forward. Unless the US is able to reprise its traditional role as a global growth engine, the global economy may be in for a period for slow growth.
Traditionally monetary policy, the exchange rate and capital accounts have acted as checks and balances for fiscal policy. However, the stabilizing power of these tools has been greatly diminished by overzealous central banks and indecisive policy makers. I believe that this function has now shifted to the commodity markets, and is the main reason why we are seeing negative price movements in oil and metals.
These adjustments in resource pricing will eventually pass-through into greater efficiency to those nations that are resource buyer like Europe. Unfortunately it will impact resource sellers like Russia. Once more the importance of adjusting a country’s budget counter to the economic cycle is highlighted. Countries like Russia which have in the past failed to capitalize on past favorable imbalances in prices will be subject to periods of economic pressure. Hopefully countries like France and Italy will someday learn the lesson.
Elsewhere;
US
US stocks rebounded during yesterdays’ session after plunging more than 3 percent intraday. The S&P 500 lost 0.8 percent adding to recent dips. The Index fell 7.4 percent from a record high on September 18. The 3 percent intraday plunge is the heaviest since 2011 and wiped out all gains for this year.
The sell-off follows data that shows that retail sales in the US dropped more than forecast in September, decreasing 0.3 percent after a 0.6 percent gain in August. The decline exceeded forecast by analysts that called for a 0.1 percent decline.
Concern about the spread of the Ebola virus is also starting to affect markets. Airline stocks declined as much as 22 percent.
Asia
Asian stocks followed US markets dropping to their lowest levels since a peak in July. The Benchmark MSCI Asia Pacific Index dropped 8.7 percent since the peak.
Europe
The focus of the economic crises remains the Euro Area. To add to established worries German growth now appears to be faltering. Mario Draghi, the ECB’s President, has already managed to pull the Eurozone from the brink of a debt crisis in 2012 by cutting interest rates to a record low and issuing cheap loans to banks. However, purchase of government debt appears to be the last option remaining for the Central Bank.
Meanwhile, this morning the European Union started its two-weak probe into Euro-Area budgets. French and Italian spending plans are the main items for discussion as both economies face weakening economic growth amid mounting deficits.
Commodities
Crude oil extended declines falling 1.3 percent. Brent for November delivery retreated to $82.72 per barrel in London.
Gold dropped further to $1,240 per ounce or 0.1 percent.
The following Companies will be reporting results today;
In Europe; Nestle, Ziggo, Carrefour, Roche, Syngenta, Faurecia and Diageo.
In the US; Netflix, Delta, Mattel, Baker Hughes Inc, Philip Morris International Inc, Goldman Sachs, Baxter International, Sandisk, Google and Schlumberger.
Apple Inc has as Special Media Event during which the company is expected to introduce new products.
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