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Markets Won't Hit Bottom Until We Start Seeing Some Growth

Markets Won't Hit Bottom Until We Start Seeing Some Growth
(Dollar Photo Club)

By    |   Monday, 05 October 2015 08:13 AM

Friday’s U.S. jobs report created more uncertainty about when the Fed will finally start raising rates.

There was one glimmer of good news as the total unemployment rate fell further to 10.3 percent.

The overall employment situation is not falling off a cliff, that’s for sure, but it certainly could have been better.

Meanwhile, Boston Fed President Rosengren said a rate hike this year is still appropriate if the U.S. economy grows at 2-2.5 percent in the second half of this year, as we see global growth continuing slowing further, which will, one way or another, impact the U.S.

Rosengren also said that “if we wait too long then we run the risk of raising rates more abruptly, and I think that just increases the probability that we make more mistakes.”

Elsewhere, the Markit Eurozone composite PMI shows signs growth in the eurozone is “waning,” which is not good news at all.

Chris Williamson, chief economist at Markit commented: “The  failure of the economy to pick up speed over the summer will be a disappointment to the ECB, especially with job creation sliding to an eight-month low. The weakening of the pace of  expansion in September raises the risk of growth fading further in  the fourth quarter, which would in turn boost the likelihood of the ECB opening the QE taps further.”

More QE from the ECB should ultimately, over the median term, weaken the euro. In the meantime the euro remains well anchored in the $1.11-$1.14 per euro zone.

While it’s for the long-term investor impossible to disregard what goes on in the Eurozone, the just released update of the Brookings-Financial Times TIGER (Tracking Indexes for the Global Economic Recovery) is probably, for the moment at least, of more importance for having a good idea where the most important developed- and developing economies of the World are headed to.

The Brookings Institution’s title of its report says it all: “The world economy remains adrift in choppy waters.” 

The institution says while growth prospects for the advanced economies have improved, it must be taken into account this is largely because of still decent growth in the U.S. and the U.K. The eurozone remains mired in low growth and Japan’s economy appears to have stalled again.

Besides that, commodity-exporting countries, both advanced and emerging, have been hit by sharp growth (demand) slowdowns.

The dangers for a next wave of global economic growth problems will probably (No, you can never fully eliminate present geopolitical risks) be caused by the rising and spreading growth problems in the emerging market economies (EM).

It’s a fact, EM which had become the main drivers of global growth in the aftermath of the 2008-2009 financial crisis, now indications today continue rising the emerging market economies are now leading the world economy into a slump.

EM growth has fallen, business and consumer confidence are eroding, and financial markets have taken a beating in the EM.

I don’t want to sound like a pessimist, but when we take a realistic view at all the recent "important" PMIs as well as the just released Brookings Institute country specific overall growth indices as well as its other indices, they “all” show weakening or stagnating situations, of course with some more than others.

When we add to that, the World Bank Annual Report 2015 states: “The developing economies of East Asia and Pacific (accounted for one-third of global growth in 2014!) are projected to grow by 6.7 percent a year in 2015 and 2016, down from 6.9 percent in 2014 …  China’s growth (is expected) to about 7 percent during the next two years, down from 7.4 percent in 2014. Growth in the rest of developing East Asia is expected to reach 4.9 percent in 2015 and 5.4 percent in 2016, driven primarily by the large Southeast Asian economies … economic growth in Europe and Central Asia is stagnating this year, after growing just 1.8 percent in 2014.”

We haven’t seen the bottoms yet in equity or commodity markets. Before markets finally bottom out, the world will have to start growing again and that's not on the horizon yet.

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To put it all together, at least in my opinion, we haven’t seen the bottoms yet in equity as well as commodity markets.
economy, invest, markets, bottom
Monday, 05 October 2015 08:13 AM
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