Chinese burn
Concern around China rocketed back to the front of investor’s minds yesterday as stocks crumpled by 8%, the most since the Global Financial Crisis. Concerns over a bubble in stock prices given the crackdowns on leverage, the continually expansionist monetary policy of the People’s Bank of China and the weak economic news are all threatening to bring this party to a rather abrupt halt.
Emerging market sell-offs are nothing new, they are by definition more volatile than developed world equity markets, but with the atmosphere shifting to one where the Federal Reserve may be starting to raise interest rates in the coming quarter, the outlook for emerging markets is not great.
Fed meeting to be the last of this rate cycle
The Federal Reserve begins its two day rate meeting today with this being, in my opinion at least, the last meeting that will see rates held as they are at 0.25%. Dollar has fallen a little overnight ahead of this meeting. Policymakers will be allowed to make comments on the state of the US and world economies once the meeting is over and therefore there are likely to be some policymakers that are concerned with global headwinds to the US economy.
UK GDP to bounceback
Likewise here in the UK, sterling has slipped back ahead of the first reading of Q2 GDP due today. Acceleration from the poor Q1 figure of 0.4% is almost guaranteed with consensus estimates pointing to a figure of around 0.7%.
The general election obviously fell within that quarter but is unlikely to have dragged the numbers too much lower; the result was the least damaging to market confidence. That being said, manufacturing and construction companies both reported declines in output in the lead-up to the vote. All in all, and in a familiar tale for the UK economy, it is the services sector and the base of consumers in the UK that will have dug the recovery out of a whole courtesy of an improving jobs market and rising wages. The figure is due at 09.30.
News that Prime Minister David Cameron is looking to fast-track the referendum on the EU in June of next year. The timing makes sense for the Government – short enough for the positivity of the general election to be still a wind in their sales whilst also giving them enough time to beat down the fears that the recent tribulations of Greece caused.
Oil continues to drive lower
Elsewhere oil prices continue to be dragged lower by both global demand and supply concerns. Spot markets – contracts for immediate delivery – have collapsed as have the longer-end of the price curve. This means that contracts to be delivered in the future will be pointing to even lower prices and thus weaker inflationary pressures being pulled through. Obviously this will in turn have an effect on the viability of any interest rate normalisation moves by the world’s central banks.