The
forex and bond markets seem set for a few more volatile days for the following
reasons:
1. Greece
and the Hellenic charge of the EU brigade under the German generals.
2. The discernible
divergence in growth between countries. USA , China, India, Germany are all on
growth, while others ranging from Venezuela to South Africa to Ghana to Russia are lagging. The nothingness of some
countries like Venezuela, Russia: the hitherto were power negotiators
3. The
organized advanced economies are contributing less to global growth, and the emerging economies have seized the
initiative by contributing more to global growth; some estimates show their
contribution at 70 %.
4. Europe
is down; parts of it are virtually out. The unemployment rate in Spain and
Greece, at around 25 percent, is at a post war high.
5. Currency
tremors range from Swiss Francs to Danish Kroner which are seeing a fall in
euro.
6. China
can average only at about 7 %. India and China , both the new big guys to
watch, seem to be wrestling with work practices which are not so professional. Herd instincts and not so
transparent corporates in India affect growth. Reforms are slow in India.
7. Indian
and Chinese banking system seem vulnerable.
8. Japan ,
is struggling to be reborn as an economic power; recession just does not seem
to vacate.
9. QE is
over in USA but has just begun in Europe
and Japan. These asset purchases will move markets.
10. Bond
yields have been falling. Japanese and German 10 year government bonds have
fallen so low.
11. Deflation
worries are real in large parts of the world. consumer price inflation is very
low and below the monetary policy target bands in several advanced economies.
12. The
nearly 55 percent decline in oil prices in US dollars and the near 25 percent decline in commodity prices add to deflation fears.
13. Japanese,
ECB , Chinese, Indian, Danish, Swiss,
Canada Australian central banks have cut
rates or attempted to increase liquidity too revive industry.
14. US
dollar is strengthening. Interest rates are set to rise and as us assets increase in value, there will be an
exit from the emerging economies into USA.
15. The primary
transmission mechanism for expanded quantitative easing is likely to be through
exchange rate adjustment. Exchange rate tensions among countries will increase
as it affects sales.
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Views expressed here are without any risk or responsibility.
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