It feels like 1968 all over again. The French have turned to the left, Manchester City have won the league and I can’t stop listening to ‘The White Album”. There’s change in the air and it’s going to make the rest of 2012 very exciting.
Europe’s Right has been dealt a major blow since we last spoke with the electorate voting decisively against austerity both in the UK and France. While Cameron and Osborne lick their wounds on this side of the Channel, Francois Hollande faces a daunting task on the other.
As the left’s euphoria for Hollande’s victory dies down, the eurozone’s debt crisis has entered a new dangerous phase. The political shambles rolls on in Greece and its exit from the single currency looks more likely than ever. It’s not a case of ‘if’ anymore, it’s when and how. What that will mean for the rest of us is anyone’s guess, but it won’t be pretty.
Hollande’s late arrival to the eurozone party heralds fresh uncertainty in the region. While Merkozy were key advocates of austerity, markets will be wary about a possible shift to a new pro-growth focus. Investors do not like uncertainty, so developments over the coming weeks will be crucial.
In the UK a let-up on austerity is unlikely. The Coalition has made it clear Britain is in for a prolonged period of tight fiscal policy, with sweeping Government spending cuts and few tax giveaways over the coming years. Given we are now officially back in recession, Osborne might have been irked then by the Bank’s decision to pause additional monetary stimulus, by voting against more quantitative easing.
However, it may not be over yet, and one senior economist told me that more QE may be on its way in the coming months while interest rates are not expected to rise until well into 2013.
Commodity markets have put in their worst performance since the rout of 2008 at the height of the financial crisis. Virtually all gains across the sector have been wiped out this year. Gold has been especially weak, falling below $1,600 an ounce as the euro crisis looks set to prompt another flight to safety. Risk aversion is the order of the day.
These so-called “risk-off” events usually lead to a strengthening of the dollar – which is bad for all commodities – but particularly gold. The demand side of the equation also looks equally uncertain, as concerns about a slowing Chinese economy become real.
Chinese trade data for April supported this view, with imports falling. A certain amount of restocking went on in the first 3 months of the year, but this looks like it is coming to an end. Copper imports fell 21.5pc last month, which is a gloomy number as copper is regarded as a leading indicator of economic activity because of its wide variety of uses.
Oil also looks set for a fall after Opec said that it was producing 8pc more than is needed. There’s always the Iranian tension to support the price, but supplies look plentiful and a period of weakness looks in order
That’s all for now, all this talk about 1968 has got me worried. There were demonstrations on the streets, political assassinations and Engelbert Humperdinck was in the charts.
I’ve just realised he’s our entry in the Eurovision Song Contest later this month. Plus ça change!
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Markets set for Volatile Summer as the Left hit back
May 14, 2012 at 4:03 pm in Market Commentary by City Insider
It feels like 1968 all over again. The French have turned to the left, Manchester City have won the league and I can’t stop listening to ‘The White Album”. There’s change in the air and it’s going to make the rest of 2012 very exciting.
Europe’s Right has been dealt a major blow since we last spoke with the electorate voting decisively against austerity both in the UK and France. While Cameron and Osborne lick their wounds on this side of the Channel, Francois Hollande faces a daunting task on the other.
As the left’s euphoria for Hollande’s victory dies down, the eurozone’s debt crisis has entered a new dangerous phase. The political shambles rolls on in Greece and its exit from the single currency looks more likely than ever. It’s not a case of ‘if’ anymore, it’s when and how. What that will mean for the rest of us is anyone’s guess, but it won’t be pretty.
Hollande’s late arrival to the eurozone party heralds fresh uncertainty in the region. While Merkozy were key advocates of austerity, markets will be wary about a possible shift to a new pro-growth focus. Investors do not like uncertainty, so developments over the coming weeks will be crucial.
In the UK a let-up on austerity is unlikely. The Coalition has made it clear Britain is in for a prolonged period of tight fiscal policy, with sweeping Government spending cuts and few tax giveaways over the coming years. Given we are now officially back in recession, Osborne might have been irked then by the Bank’s decision to pause additional monetary stimulus, by voting against more quantitative easing.
However, it may not be over yet, and one senior economist told me that more QE may be on its way in the coming months while interest rates are not expected to rise until well into 2013.
Commodity markets have put in their worst performance since the rout of 2008 at the height of the financial crisis. Virtually all gains across the sector have been wiped out this year. Gold has been especially weak, falling below $1,600 an ounce as the euro crisis looks set to prompt another flight to safety. Risk aversion is the order of the day.
These so-called “risk-off” events usually lead to a strengthening of the dollar – which is bad for all commodities – but particularly gold. The demand side of the equation also looks equally uncertain, as concerns about a slowing Chinese economy become real.
Chinese trade data for April supported this view, with imports falling. A certain amount of restocking went on in the first 3 months of the year, but this looks like it is coming to an end. Copper imports fell 21.5pc last month, which is a gloomy number as copper is regarded as a leading indicator of economic activity because of its wide variety of uses.
Oil also looks set for a fall after Opec said that it was producing 8pc more than is needed. There’s always the Iranian tension to support the price, but supplies look plentiful and a period of weakness looks in order
That’s all for now, all this talk about 1968 has got me worried. There were demonstrations on the streets, political assassinations and Engelbert Humperdinck was in the charts.
I’ve just realised he’s our entry in the Eurovision Song Contest later this month. Plus ça change!
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.