Looking at the events in the markets, exchange rate shocks and other disasters, it is easy to become confused and even lose orientation. This, by the way, happens to American investors, who even lost faith in the Federal Reserve System. For those who do not want to drown in a million unimportant signals that markets of developed and developing countries send every day, we have selected ten most important subjects, which will determine the development of the global economy this summer.
1. Markets will be more sensitive to U.S. data in the near future.
The Fed believes that the risks to the economy, which prompted the introduction of the QE3 + policy last fall, fell, and if the economy continues to grow in line with the expectations of the Fed, the program can be rolled up to the middle of next year.
Although many economists predicted that this would lead to a reduction in asset purchases in September / October, you can assume that it can begin as early as next month. While the Fed revised down its GDP forecast for the U.S. this year, it is still higher than the market consensus-forecast. Easing price pressures will continue in the coming months and this increases a concern of investors.
2. Liquidity squeeze in China continues.
The People's Bank of China sent two billion yuan in 3-month bills and the rate of 7-day REPO jumped to 25%. At the same time, PMI fell to a nine-month low – from 48.3 to 49.2. The number of new manufacturing orders fell to 10-month low and exports has dropped to 44 (from 48.9), which is the lowest level since March 2009. This news would have fallen off the developing markets as well as commodities even without “signs” from the Federal Reserve.
3. Eurozone shows better results than expected.
The manufacturing PMI rose to 48.7 from 47.8 in May. Although it is still below its peak, it is still at the highest level since February 2012. PMI index of business activity in the services of eurozone rose to 48.6 from 47.5 and it is the highest since March 2012. German PMI index fell to 48.7 from 49.4, the PMI index in the service sector rose to 51.3 from 49.7 - for the first time since March it is above 50. French data is even more stable, but both indices –PMI and services are still below 50.
4. Italian ruling coalition is at risk.
The constant litigation of the former Italian Prime Minister Silvio Berlusconi сauses worries. This creates a risk of falling of a fragile government coalition of Enrico Letta. However, the former prime minister said that his allies will continue to support the government.
5. The risk of acceleration of inflation in the UK rises.
In the UK retail sales raised more than twice that expected in May. They increased by 2.1%, compensating for a decline of 1.1% in April and 0.5 percent drop in March. Mark Carney next month will become a head of the Bank of England and it can cause the possible outbreak of inflation (due to his plan of work in this financial institution). Nevertheless, the British pound is in step with the US Dollar. It is the strongest of the major foreign currencies today.
6. The Norwegian krone is the weakest of the major currencies.
Its fall was about 2% against the US Dollar. It happened under some pressure of Sweden’s decision to sell most of its Nordea shares. The markets are still under the influence of this decision of the Bank of Norway. The bank also probably will continue the policy of interest rate hike at the end of next year.
7. The Swiss National Bank left the "ceiling" of the franc rate unchanged.
It will remain the same for several quarters. SNB also admitted that it has about 65 billion Swiss francs in the shares on the balance sheet. It is the shares of holdings of the most developed economies. Many economists believe that this “package” consist of mainly Swiss companies.
8. Money is coming back to Japan.
Every week the Japan’s Ministry of Finance reports that Japanese investors continue to sell overseas assets. Last week Japanese investors sold foreign bonds to 402.5 billion yen, which is slightly above the average. They also sold 130 billion yen of foreign stocks, which is below the average rate. Foreign investors, in turn, sold a small amount of Japanese shares (3.6 bln.yen) and were the best buyers of Japanese state bonds (313.3 billion yen).
9. New Zealand's GDP for Q1 was disappointing.
It showed an increase by 0.3% compared with 1.5% in Q4 (expected data - 0.5%). The combination of American and Chinese news plus pressure on the Australian dollar and disappointing data pushed the Kiwi country to a new low of 2013. Australian dollar increases their losses: it was above $ 0.96 earlier in the week and now it’s about $ 0.9160 in comparison to the US Dollar.
10. U.S. data remains controversial.
The U.S. reports a lot of data that is unlikely to help stabilize markets: primary data on unemployment remain the same, although the PMI in June rose from 52.3.to 52.7. Home sales are increased, as expected, and the annual rate would be the highest since the end of 2009. June forecast of the Reserve Bank of Philadelphia also improved - from 5.2 to 2.0.