This year has begun with the markets playing hard rock. The list of figures and events is long and all of them have effects on the markets. Obama declared the end of the crisis, radical left won in Greece, ECB began the European QE, China grew at the lower pace since 1990… Impossible to miss!
First of all, it is necessary to take into account a point in macroeconomics. IMF reduced its world growth outlook for 2015 last month. Amongst the risks, it is found the cheaper oil prices. Why? Yes, it pushes consumption and reduces industrial costs, but it can feed the deflationary trend. Deflation is very risky, as people tend to postpone investments’ and purchases’ decisions. Current price is around $50, but the pressure from Arabian producers could push it to a lower bar.
Several experts have already warned that 2015 would be an unstable year for economics. However, US President Obama said in his State of Union address to the Congress that the economic crisis was over. American economy has experienced a recovery, but Federal Reserve is still reluctant to increase rates, as it does not perceive inflation risk. Although observers tend to think that the American central bank will hike rates in summer, it is still soon to have a clear perspective about that decision with the current instability.
In Europe, the ECB did finally what many economists recommended some months, even years, ago: an expansive monetary policy printing money. The European QE will expand ECB balance in €1 trillion, but effects will take at least six months. In any case, markets make their own party, till Greeks voted the radical left party Syriza in the last election. New Greek prime minister declared his intention to negotiate the country debt, but European partners do not agree. Markets have suffered abrupt ups and downs. Another point of instability was the Swiss National Bank decision to unpeg its currency from euro, which was not expected by investors.
Latin America is still the weakest world region. As the IMF comments, these countries are very dependent from oil and commodities. The current negative price trend for these products is punishing the market evaluation about the region.
In Asia, China registered the lowest growth (“just” 7.4%) since 1990, which can show some weaknesses in its develop. These figures have partially stopped the soared trend since People’s Bank of China reduced its rates in November. In Japan, recent election victory by prime minister Abe guarantees that his expansive economic decisions will continue, but it is to see if they have effects after 25 years of weakness.