Week End Blog – Rebounds!

· by · in FINANCIAL MARKETS, MACRO. ·

Bad news is good news, right? The IMF delivered its semi-annual World Economic Outlook, and like the ones before, the content was mostly negative. GDP growth expectations were adjusted downward across the board. Growth is now expected to measure 3.1% this year, awfully close to the mental ‘ recession barrier’ of 3%. Interestingly, China’s growth was not revised!

To underpin the IMF’s negative revision German exports, a bellwether of global growth, slumped a massive 5.2% in August. For the record, the Volkswagen effect has yet to come.

Growing doubts about the world economy equals more QE! A rule of thumb that has worked for quite some time. Hence, equity markets shot up after weeks of downward pressure. The S&P 500 Index is up roughly 8% since the low of September 29th. That’s nothing less than impressive.

For oil things look even more upbeat. On Thursday, Brent was up 12% and at the time of writing oil has skyrocketed 15% in less than a week. Risk on?

For oil more fundamental factors could be at work as well. Despite lower growth expectations oil demand is revised up quite aggressively in recent weeks. In addition, it seems that at least some of the US shale plays are cutting back on production. While I am not certain at this point that these shifts are enough to put oil prices structurally higher, sentiment has improved dramatically in a matter of days.

Normally this is not the best time of the year for oil prices, however. Historically, oil prices fell during each of the last three months of the year. On average, of course! Given the strong seasonality in oil prices, the current rally looks even more impressive.

Even industrial metals are up this week. Glencore cutting its zinc production by a third sparked the biggest ever zinc price rally. From a longer term perspective things look pretty horrific, still. Since the peak in 2011 base metal prices are down a massive 47%.

Another ‘ spike’  chart was made in the US this week. Mortgage applications rose 25.5% in the week that ended on October 2, the second biggest increase since 2009. New mortgage rules aimed at protecting home buyers by giving them more time before signing surely has something to do with it. The Wall Street Journal’s Nick Timiraos already warned (me) that next week’s number will be awful. A great time to tweet another graph I would say.

Russia’s core CPI came in at 16.6% and, contrary to expectations, has failed to come down so far. The huge depreciation of the Russian Ruble has pushed inflation way up.

The Russian CPI number was an inspiration to look up the highest and lowest inflation numbers around the globe. Leaving countries like Venezuela and Syria out, Russia actually tops the list of countries with highest inflation. Brazil and Turkey also make the top four, with the graph showing that inflation is an emerging market thing. The lowest inflation number, by the way, is found in Romania. Lowflation is mostly a European thing! More on the highest vs lowest inflation levels here.

Two more to go. First, the graph of this week. The Economist published a table showing the potential GDP increase in case of gender equality. You just judge yourself!

Second, I was wondering if there’s still a sign like this (source BNP Paribas) around? Or did the Fed took them all? In recent weeks confidence is growing that there won’t be a tightening central bank anytime soon. Not even in the US.

r1

Thanks for reading the Week End Blog. Enjoy your weekend. I know that I will!

 

 

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