“It’s essentially a way for China to push back on its debt”. Global financial markets dipped sharply lower last week on a variety of fears, anticipating a global downturn in response to weakness in China’s economy and financial markets. People thought it must be tanking for a reason.
A rough August for stocks: Stocks logged modest weekly gains on Friday after closing mixed on the day.
“Overall sentiment towards emerging markets continue to be quite cautious”, said Frances Cheung, Asia strategist at Societe Generale in Hong Kong.
The US economy is in surprisingly good shape.
Commodities too bled anew, with oil prices hitting six-year lows.
It had more than doubled over 12 months from June 2014 as state media encouraged the public to invest even after economic growth began to slow. Tokyo’s Nikkei 225 lost 1.3 percent to 18,890.48. That is downright respectable. Despite what you hear in the media, fluctuations in the stock market generally have little direct or indirect impact on the economy. It has a voracious appetite for raw materials far out of proportion with its size.
At least worries about the world-China in particular.
The dollar index, which measures the greenback against a basket of currencies was last down 0.1 percent.DXY.
Some of these raw materials went toward manufacturing, but most were poured into a 20-year construction boom that peaked years ago. Citic Securities Co. slid to a three-month low after the Xinhua News Agency reported its executives were detained on suspicion of insider trading. They are done.
That’s primarily because sharp appreciations in the dollar and the pound would put downward pressure on already low inflation rates as the prices of imports fall. Such a slowdown will then be passed on through trade linkages to China’s trading partners.
Which brings us to the Federal Reserve.
“Neither current concerns about China nor a potential postponement of the first interest rate hike in the United States should significantly revive investment demand for gold“, Julius Baer said in a note.
The Fed sees full employment as between 5% and 5.25%. It did manage however, to recover some of its losses as it rose by 5 percent to 3,083 yesterday and almost by an additional 5 percent today, climbing up to 3,232.
Key FOMC members have mixed opinions regarding a September Fed rate hike. A paper presented Friday at the Kansas City Fed’s economic symposium in Jackson Hole, Wyo. made a similar point.
There is a growing chance the European Central Bank will extend its stimulus programme beyond the planned completion in September 2016, and if inflation data misses expectations that likelihood will only increase. Federal Reserve members William Dudley, Stanley Fischer, Narayana Kocherlakota, Esther George, and Loretta Mester all take a wait-and-see attitude before committing to a decision at September’s meeting, two weeks from now.
Like other emerging markets, India must build up reserves as a cushion against any potential fallout from the Fed’s tapering of stimulus. Further rate increases by the Fed are likely to occur gradually and Fed Chair Janet Yellen will probably err on the side of dovishness, he said.
Ray Dalio, the boss at Bridgewater, the world’s biggest hedge fund, agrees with Mr Summers. While some are willing to concede that this is due to the transition from an economy dominated by big industries to one where a small business has become important and therefore less easy to monitor in terms of data, others accuse China of cooking its books.
When interest rates do start to rise, Gina Sanchez of Chantico Global said currencies will likely be more volatile than stocks, bonds or commodities. They see a 49 per cent chance of a move in October.
Meanwhile, it is worth remembering the Fed has history on its side.