Tags: central banks | economy | investors | dollars

Europe Could Spark Violent Volatility in Global Markets

Europe Could Spark Violent Volatility in Global Markets

Monday, 09 May 2016 09:28 AM Current | Bio | Archive

Central banks are giving mixed signals.

New York Fed President William Dudley said it remains a reasonable expectation that the Fed will raise its benchmark interest rate twice this year.

Dudley didn't worry much about Friday’s employment data, which in my view makes a lot of sense given this is one of the most revised statistics on the planet.

Anyway, average weekly earnings growth rose year-on-year from 2.3 percent to 2.5 percent and the strong employment trend in the U.S. remains intact.

Chicago Fed President Charles Evans said the U.S. economy is on pace for growth of 2.5 percent over the course of 2016 while the most important fundamental is the improvement of labor prospects.

Meanwhile, in Japan, the minutes of the BOJ March 14-15 Monetary Policy Meeting show that a number of members of the Bank of Japan are concerned that the negative interest rate might have fueled unrealistic expectations about further easing.

There are also some veiled comments about the difficulty of understanding the negative rate policy, which may be an implied criticism on the confusion that existed before the negative rates were formally implemented. 

The oil price has been rising in the wake of devastating fires in Canada and at present they are larger than Hong Kong that is currently burning.

Oil is now moving toward $50 per barrel. It is worth noting that, generally speaking, less than half of the decline in the crude oil price was passed onto consumers in OECD countries because of a combination of taxes and in some markets increasing labor rates, which blunts the effects of the pass-through of changing oil prices.

Therefore, the base effects of lower or higher oil prices on consumer price inflation (CPI) need to be seen in that context.

The London mayoral election showed a significant increase in turnout coming in at 45.3 percent, which was 7.2 percent more than the 38.1 percent turnout in 2012.

This may be significant as it shows the population of London to be politically engaged ahead of the June referendum on UK membership of the EU.

Past opinion polls have shown that London is by quite a large margin the most pro-EU part of the UK.

Meanwhile, leaders of the no-campaign that favor leaving the EU have suggested that in the event of an exit, the UK would not seek to be part of the single market.

This has been classified by economists as the hard-exit scenario.

A recent opinion poll indicated that no-supporters were motivated by immigration issues, not by economic issues, while yes-supporters prioritized economic issues above other factors.

The Greeks, once again, are waiting to hear if the get another distribution of largesse from the IMF and the Eurogroup. The Greek government passed last night in Parliament more fiscal tightening measures including pension and tax reforms to meet the basic requirements, but the IMF has been mustering about additional contingent measures and as Managing Director Christine Lagarde explained in a letter to Eurogroup in the event that the Greek government fails to meet its targets.

This is not surprising as Greece has since its government-debt crisis started in 2009 has a history of failing to meet its targets.

Given the politics around the refugee crisis in Europe there is perhaps a desire to keep Greece off the front pages of the newspapers of the continent, but the IMF is of course less swayed by such matters that is the Eurogroup.

Over the coming days and weeks, investors should be on alert because we could, which doesn’t mean we will, see if the EU becomes, once again, a serious source of multiple uncertainties related to:

  • The ongoing Greek debt crisis.
  • BREXIT, yes-or-no vote.
  • The ongoing refugee crisis that still has no workable solution in sight.

If one of those challenges should turn out not in a way as is at present hoped for by the overall majority, then we could have serious spikes in overall volatility.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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My morning thoughts on Monday, May 09, 2016.
central banks, economy, investors, dollars
Monday, 09 May 2016 09:28 AM
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