The Long and the Short of It : Crystal Gazing the market for the week

The Long and the Short of the Markets:

Markets seem likely to be more volatility prone this week .

The moment of truth moment for Greece with the probability of a debt debacle  and the Europeans' frustrating lack of consensus.

Australia is languishing in the Chinese shadow. The number of people trapped in long-term unemployment in Australia hit a 16-year high,  unemployed for a year or more has risen by 18 per cent over the past year to 188,000 ; that is almost three times more than mid-2008. Yet Melbourne and Sydney property prices are high, possibly because the Chinese are letting go off domestic property to invest in Australia , riding on the back of a falling Australian dollar which is being encouraged further south.

 John Cryan in Frankfurt as  CEO of  Deutsche ,  (replacing Jain and Fitschen in the latest of a series of leadership crisis among Western banks indicates how there is divergence between the governance of companies and investors expectations. . Banking stocks may see further pressures.

IMF pointed out that the first quarter was a  'shaky' one for the U.S. economy. Revised IMF growth forecast was down to 2.5 percent for 2015.  Data on the labor market has steadily improved with the job growth averaging  about 250,000 per month.  Cheaper oil prices may boost consumption . However, delay in  the housing recovery and the strong dollar  may keep the inflation pressures quiet  so that the Fed needs to raise rates in the last quarter. Global investment activity indicates that even easy liquidity policy is not enthusing investment.

Source - BIS Statistics

Russia and Qatar could lose the right to host the 2018 and 2022 World Cups if evidence is found of corruption in the bidding process. About 14 FIFA officials and sports marketing executives are accused by US prosecutors of taking part in a sweeping kickbacks scheme going back 20 years involving a total of $150 million in bribes. Would sponsor corporate entities  be involved  and would they be sold off on world equity markets?

Gold seems to continue to be gathering dust.  

Emerging economies seem too hot for now. 

G7 meet in Germany seems to have a Russian contain agenda rather than economics. They will speak more on Ukraine and just a whisper  on Greece. 

Schloss Elmau, Germany G-7 Meet 

So the hesitant investor seems to  look to USD  assets for the coming week. When in doubt, get to the safe haven.

Without any risk or responsibility. 

The Long and the Short of It : The Week Ahead

Source:www.oecd.org/economy/economicoutlook.htm.

The Long : Prospects  Good 

• The OECD projects that the US will grow by 3.1 percent in 2015  and by 3 percent in 2016, 
• UK is projected to grow at 2.6 percent in 2015 and 2.5 per cent in 2016. 
• Canadian growth is projected at 2.2 percent this year and 2.1 percent in 2016.
• Japan is projected to grow by 1 percent in 2015 and 1.4 percent in 2016.
• The euro area is projected to grow at a 1.4 percent rate in 2015 and a 2 percent pace in 2016. 
•  major euro area economies. 
• Germany is forecast to grow by 1.7 percent in 2015 and 2.2 percent in 2016, France by 1.1 percent in 2015 and 1.7 percent in 2016, while Italy will see a 0.6 percent growth rate in 2015 and 1.3 percent in 2016. 
• China is expected to grow by about 7 percent annually in both 2015 and 2016.
• India will grow by 7.7 percent in 2015 and 8 percent in 2016.
• Brazil’s economy is expected to shrink by 0.5 percent in 2015 before returning to a 1.2 percent growth rate in 2016.

 The Short : An equity market buy and a Japan buy Week? 

The United States,  the major driving force of global growth, has a decelerated  real GDP growth rate for the January-March quarter. This was  in part, due,  to effects of adverse weather conditions. The Texan floods add to economic impacting of nature further. Inflation is being held in check  by the slow recovery and, also by lower prices of imported goods as also the fall in oil prices. Unless there are clear indicators of a reversal, the Fed will not hike rates any time soon. 

Structural fragilities in Europe seem to persist. Europe may get its act together on the Greek tragedy, but its dithering and dallying policy makers are not so inspiring. A temporary truce is not likely to help and structural reforms seem so far away. France and Italy are still laggards to Germany. European banks seem to be too big to fail but seem arthritic in reactions with the agony of misfeasance.  

Global growth will have to be primarily led mainly by Asian  private demand, with  firm households spending. The Chinese economy remains sluggish against the backdrop of the deceleration in fixed asset investment and continued inventory adjustments. India is still slow on its reforms and its Prime Minister appears to be a lone ranger for infrastructural growth. Dreams to reality is India's challenge. Its central bank might reduce the interest rate this week but this might have already been factored in last week by investors. Further, the transmission mechanism is slow and halting. Its bureaucracy is sluggish and archaic so FDI will be slow and in fits. China  is ahead of India by at least a decade, (although "Comparisons are odious palabra' said Shakespeare). The fact remains that the Indian Government is aware that it has to accelerate growth through infrastructure trigger. 

Commodity exporting economies like Australia are  yet to gain  momentum.Mining firms are likely to cut investment against the backdrop of sluggish  demand. Australia has become so China linked that it is  waiting for the Asian giant to lead. The Australian unemployment rate  is forecast to rise further and wage growth is unlikely to move up, thus affecting purchasing power or saving potential. The official stance seems to be to talk the Aussie dollar down.   

Crude oil prices might  rise a shade on political tensions in the Middle East and uncertainty in US (read Texas ) supplies but is likely to be  pulled  back because of the 30 million barrels of oil per day supplies yet to meet equivalent demand. The weaker economies among the oil suppliers  open up their taps  on the sly  to meet internal income demands; so the price of WTI might languish at around $60 per barrel. 

There is little to revive gold - neither inflation nor Asia seems poised to extend a hand. India's ambitious gold deposit scheme might, if it takes off, add in volumes to the supply and might off set any rise in the global  gold demand. India's many temples, if not households,  could  monetize gold. So supply side economics will keep gold prices down for quite some time. 

Europe has been  the epi-center of the global bond-market quake since mid-April. About  $375 billion was wiped off the value of euro-zone-government bonds when prices fell abruptly after rising for several months to record levels. So investors might be hesitant to return to bonds so soon.There are monetary policy excesses at play. Players like the Swedish central bank (Riksbank) face a risk of bond shortages as they intend to enhance market liquidity. Substituting sovereign with mortgage bonds might just about fuel a bubble in the housing market. 

So the short of it is that equity markets might host investors this week despite possible volatility. Japan looks to be the week's favourite economy with some dissipation of the deflation sentiment in view. The tremors off its coast may not have had much of an economic  effect. 

Without any risk or responsibility on the part of the author. 

“We’re in the dark like everybody else on this. We don’t have any information at all, a lot of curiosity.” (Richard Hart, Police Chief , Yorkville)