BY Judith Waker:

A short summary this week written 30000 feet above the sea on my way back (coincidentely) to one hopeful economy (UK) from ‘the’ other (USA).

Read on!

The International monetary fund made its forecasts this week cutting economic growth forecasts across the global marketplace, with a few notable exceptions giving way to a little optimism but confined only to the US and the UK.

It is still a fragile recovery but news elsewhere has caused more warnings of deflation in the Eurozone and many pressures on the lagging economies.

If you had read the data and results sheet this last week, there was a good deal of conflicting information, and it is true The USD index has also seen a down move, a correction in its recent remarkably strong uptrend and plenty of noise to distract the unwary trader.  But as always it is wise to ‘keep calm and watch the bigger picture’ and there is nothing like an IMF report to put it all into focus. 

And Then There Were Two 

The stars in the economic firmament are the US and the UK. With the US jobs report showing a 13 yr high for job openings, there does seem to be some consistency in the recovery stats. The labour market is indeed one of the major focuses for the Federal Reserve and in particular their Chairwoman, Janet Yellen in formulating monetary policy. And its all about when they might start hiking interest rates. Yellen believes more needs to be seen in the way of strength before the tightening begins, and that there are still too many without jobs. However, the results are certainly giving weight to the expectation that the rate rise will come in early to mid 2015, way ahead of any other economy except Britain. The IMF sang the praises of the GB austerity policy and the results which continue to show firm growth and another economy considering rate rises. There is a housing bubble in the UK but all in all these are the two to watch for strength in their currencies.

The Risk in the Eurozone 

The take on the Eurozone crises by the IMF was where the tone changed. Globally they drew examples of problems but no where more worrying than the zone of 18 countries all it seems with their disparate and challenging issues. Germany was in focus this last week as one of their biggest and most hopeful regions for evidence of recovery. It was not seen this week. Manufacturing shrank in the last month, business confidence is falling and factory orders were dismal, falling by 5.7%. Thats a major downturn. There was some good news with Euro retail sales and consumer spending in France and Germany, but the underlying factors, as the IMF pointed out , were bleak. There is now a growing chance of deflation in the region and a diminishing number of tools available to the ECB to prevent it.

The Global Outlook 

‘Darkened’ was the chosen adjective of the FT following the IMF report. With deflation fears in Europe the forecast globally was cut. This includes the emerging markets with China Brazil and Russia looking weak, the latter of course mired in sanctions and geopolitical issues and risks. Japan’s outlook also lowered, this one also not surprising with an unrealistic inflation target being chased at any cost.

Staying focused 

There is alway noise around all events, both the data and the geopolitical news but the major trend of the economies has not changed and if anyone was in any doubt, the IMF have clarified the current macro environment and the structure around which trades can be placed on the longer term timeframe.  Keep a few fundamental tools in the toolbox!

Judith Waker