Since the beginning of the year, the European auto sector has been one of the weakest performers on the stock market. While economic growth prospects tend to be revised upwards in a context of lower deflationary pressures, we would have expected more encouraging signs from this sector. It seems that such a case is increasingly unlikely. Weighed down by weak domestic growth prospects after two years on the rebound, the sector finds itself dealing with the fallout of weak global prospects, the US administration’s ill-advised moves with respect to reflation, the decline in the price of oil and now, the rising euro… This is the view on a sector with characteristics that place it at the very heart of the challenges facing the financial markets in recent months.
Archives par catégories : Global Trends
Commodities: rethinking the global structural outlook
Commodity prices tend to be fairly insulated from short-term changes in supply and demand. Given this, as long as the wayward global economy did not call into question the long-term economic outlook its effects on commodity markets was only marginal.
The slide since mid-October should therefore be seen as the bellwether of a marked change in the global outlook in the mid and long term. This is why the recent slide in oil prices is a harbinger of bad news, even though there are obvious benefits for consumers in countries that import oil.
Price of Oil, Global Inflation and T-Bonds
Disinflation continues to gain ground around the planet and things don’t seem poised to improve anytime soon. The effects of the drop in global oil and agricultural commodities in the coming months will compound the consequences of sluggish growth amid persistent competitive tension. Global inflation could fall to around 2.5 % to Q1 2015 while a growing number of economies slip into negative inflation territory. Such an environment could very well lead to a new slump in global interest rates…
Cheaper oil, a stabilizing force for growth
Our forecast for a sharp drop in commodity prices seems to have materialized since the summer. Despite a tense geopolitical situation, the fall in the price of oil has already reached 15% and, helped by sagging consumption, the global oil price tag has contracted by 1 GDP point since the start of the year. Each country has different exposure to this adjustment but, generally speaking, it has been more favorable for developed economies than emerging markets. Regardless, lower oil prices have maintained a stabilizing effect that could provide vital support given the present situation.
When globalization is thrown in reverse
One of the most striking illustrations of the changes that have occurred since the 2008 crisis is the 180° turn that international trade has made. Once discounted as a one-off phenomenon, reverse globalization has taken an increasingly permanent turn in the past two years. The paradigm shift in the Chinese economy is the main factor behind the trend. The consequences of this sea change are sizeable for global growth, corporate valuations and geopolitical risk.
No QE, so we’ll have to settle for the minutes…
The ECB says it needs time to beef up its anti-deflation measures. Let’s not kid ourselves, the bank is in no hurry. There seems to be but one justification for its move to space out its meetings from every four to every six weeks and the innovation that consists of publishing its minutes: deflate ballooning expectations of future intervention.
This, in reality, was the only take-away from the ECB’s monthly monetary policy meeting held this week. In other words, there is no revolution under the European skies: the pace of change is still in slow motion and lacking in ambition.
Who still doesn’t have a pair of “Birkies”? Or how Made in Germany sheds stereotypes
Retailing, leather goods, shoes…German brands are flourishing in unexpected places. Birkenstocks sandals, which seem headed to becoming the must-have item for the summer of 2014, are the latest trend in a broader movement towards reshaping “Made in Germany”.
Increasingly present on European shelves, everyday consumer products with relatively low added have gained in popularity and are a far cry from the heavy industrial goods, manufacturing equipment and upscale household appliances that have forged Germany’s industrial fabric. This is particularly interesting given markets’ recent infatuation with exotic emerging countries.
“Our currency, your problem”
Things are a little clearer since Mario Draghi’s press conference: the ECB considers the euro’s strength a deflationary risk factor. It is likely to move as a result, albeit in a measured manner starting in June then increasingly so thereafter if necessary, which will probably be the case. Against a backdrop where most other central banks are implementing monetary policies aiming to depreciate their currencies, the hesitancy of the ECB was no longer tenable. So that was a bit of good news but let’s not get ahead of ourselves: by taking such action Mr. Draghi is trying to give the other central banks a taste of their own medicine, making life hard on the Fed, BoJ and BoC, and not the other way around