Economics Weekly - Collapse in trade leads global downturn in production; Weekly economic data preview - BoE Quarterly Inflation Attitudes Survey and a plethora of weak data
Economics Weekly9 March 2009
Collapse in trade leads
global downturn in production
For all of the focus
there has been on the crisis in financial markets, the economic downturn has
been led by the industrial sector. However, a substantial part of the reason
for the decline in industrial output is a tightening of credit conditions â€“ a
direct result of the financial market crisis. But the key point is the downturn
now underway is impacting countries which did not increase debt (leverage)
excessively nor were involved directly in the credit markets that have now gone
bad. Rather, they are being affected by the widespread collapse in global trade
that is now underway. This means that the higher the share of foreign trade in
a countryâ€™s economy, the worst the impact on it from the current slowdown in
world growth. The credit crisis is acting to worsen the global economic
downturn as trade credit and invoicing dry up. Not surprisingly, companies are
reducing inventories rapidly, business confidence has fallen sharply and unemployment
is now rising quickly.
World trade collapse is
leading the economic downturn...
Of course, the facts show
that an economic slowdown was underway before the credit crisis erupted in 2007,
because of rising interest rates around the world to head off rising price
inflation. Accelerating inflation was occurring because a long period of fast
economic growth had reduced global spare capacity sufficiently to ramp up
commodity prices and this was helping to cause a sharpening rise in global
consumer prices. Further, it is worth bearing in mind that global growth was
itself unbalanced, with the surplus of the exporting countries being used to
fund growth in the countries with a trade deficit via a rise in their debt (as they
borrowed from the rest of the world). This could not continue indefinitely, as
it was creating bubbles in property and financial markets in the debtor
countries that eventually burst and spawned the resultant credit crisis that
still rumbles on, despite all the efforts to tackle it.
...hitting countries with
large exporting shares, even though they are not highly indebted...
It is a collapse in
economic growth in the debtor countries that is now leading to a sharp
contraction in global economic growth. This is particularly hitting those
countries that are big exporters (Germany, Japan etc). But the
situation is more complicated than this, as the general slowdown in economic
growth and trade volumes in a globalised economy is spreading the shock to all
countries. It is also probably worth noting that growth in Germany and Japan has been led by exports
in the last decade and that domestic demand is not sufficient to prevent
recession. Indeed, both of these large economies would have barely grown in the
last decade if not for the sharp rise in global trade. The same cannot be said
of some of the countries with big trade surpluses, like China and India. Although economic
growth has been led by exports in these countries, domestic demand growth has
been strong as well. Nevertheless, there is now a vicious self-perpetuating
downward cycle underway between trade and economic growth that will likely take a resolution of the
credit crisis and a return of business confidence to help to break this pattern.
This is the context for
the general fall in global trade that is now underway, with chart a showing
that this is likely to be easily the biggest decline in global trade since the
1950s. Since world trade growth and world gdp growth seem to be closely linked,
a recovery in global trade will be necessary to sustain any recovery in
economic growth and vice versa. Export volumes are falling very sharply, see
chart b, with the decline in Japanese export volumes in January, for instance,
running at nearly 50% lower than in the year before. Hence, trade linkages seem
to lie at the heart of the collapse taking place in global industrial production.
Chart c shows industrial production tracking the fall in export volumes
downward almost in step. In practical terms, the response reflects a
calculation being made by companies that are facing falling demand and a
reduced access to external and internal finance. They are scaling back in order
to survive the economic downturn now underway and so sharply reducing stocks,
output and employment.
...as in a closely
integrated global economy, recovery will take time and depend on the resolution
of the credit crisis
The fall in industrial
production is fed by a severe fall in business and consumer confidence. Chart d
and e show that the falls in confidence have been dramatic since the third
quarter of 2008. One of the key features of this is that it is happening almost
simultaneously in a range of key economies around the world. With such a big
synchronised, fall in global production and business confidence, it is not
surprising that unemployment is beginning to show the kind of increase not seen
in decades, see chart f. With these negative economic trends in place, it is
only a matter of time before retail sales fall more sharply than seen so far in
most countries, see chart g. It may seem obvious, but the pace of the eventual
economic recovery will be limited by the extent of the rise in unemployment now
underway. Unfortunately, this analysis also suggests that the global economic
recovery may take some time, despite the massive fiscal and monetary
oosening now underway and that it could get
worse before it gets better.
ô€‚„ The UK BoE publishes its Quarterly Inflation Attitudes Survey on
Thursday. The November survey showed the largest quarterly fall in consumer
price expectations since the survey began in November 1999. We will be looking
to see how much household perceptions have changed three months on. In
particular, will 12-month price expectations be in line with the BoEâ€™s
assessment derived from market interest rates of inflation hovering around 1%
over the 2-yr forecast horizon (well below the 2% target). Inflation
expectations are important for the BoE and have in the past been a key
indicator informing monetary policy decisions. Should there be
a sharp decline in household price expectations it will provide further
justification of the need for the Â£75bn asset purchase programme. BoE member
Barkerâ€™s speech will also attract attention on Thursday, especially for any
insight that she may offer on the depressed UK housing market. In terms
of data, the UK statistical office publishes industrial production, which is
likely to have undergone another sharp fall in January and external trade data
which may position the trade deficit at around Â£7.8bn (Â£7.4bn in December) as
world trade collapses. Other releases include the NIESR 3-month rolling GDP
figure and the BRC retail sales monitor, both for February.
ô€‚„ February data published last week showing the US unemployment rate
rising to a 25-year high of 8.1% and US NFP employment falling by 651,000 the
worst outcome since 1949, set the stage for another gloomy array of US economic
news this week. Wholesale and business inventories are both likely to have
again significantly contracted in January, as firms attempt to tighten
operating margins in response to falling orders. Retail sales for February will
also register sharp falls of around 9% on an annual basis as consumer
confidence is very weak. This will be highlighted by the March preliminary
University of Michigan Survey due Friday, which
will probably be only just above Novemberâ€™s index low of 55.3, at 56.5.
Finally, the US trade deficit may have
narrowed further to $37bn in January ($39.9bn in December) as the recession
imposes a sharp adjustment to the US external accounts.
ô€‚„ One or other ECB member presents speeches each day this week, all
of which will be gleaned for follow on information from ECB
President Trichetâ€™s press conference last Thursday. Questions such as, will the
ECB cut its repo rate further back towards zero or will it rely on using the 1%
deposit refinancing corridor and unlimited commercial banksâ€™ refinancing scheme
to ultimately do the job of unfreezing financial markets and re-invigorating
the economy? Other contentious issues include how the ECB would reach
governmental agreement for quantitative easing, if considered necessary, given
the sharp economic and fiscal deficit variation between its member states.
EU-16 economic data include French & German industrial output, German
factory orders (forecast to have contracted by 28% on an annual basis) and
EU-16 producer prices & retail sales. With the Eurozone economy under
growing strain from within and without there must be a high probability of the
ECB having to do more - we project an interest rate cut to 1% as soon as April.
Any documentation, reports, correspondence or other
material or information in whatever form be it electronic, textual or
otherwise is based on sources believed to be reliable, however neither the Bank
nor its directors, officers or employees warrant accuracy, completeness or
otherwise, or accept responsibility for any error, omission or other
inaccuracy, or for any consequences arising from any reliance upon such information.
The facts and data contained are not, and should under no circumstances be
treated as an offer or solicitation to offer, to buy or sell any product, nor
are they intended to be a substitute for commercial judgement or professional
or legal advice, and you should not act in reliance upon any of the facts and
data contained, without first obtaining professional advice relevant to your
circumstances. Expressions of opinion may be subject to change without notice.
Although warrants and/or derivative instruments can be utilised for the
management of investment risk, some of these products are unsuitable for many
investors. The facts and data contained are therefore not intended for the use
of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc.
Lloyds TSB Bank plc is authorised and regulated by the Financial Services
Authority and is a signatory to the Banking Codes, and represents only the
Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and
Forex Trading News
Daily Forex Market News Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Forex News Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."
Actionable trading levels delivered to YOUR charts in real-time.
GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium Mon 23 Apr 2018 A All Day- Flash PMIs AA 14:00 US- Existing Homes Sales Tue 24 Apr 2018 AA 01:30 AU- CPI A 08:00 DE- IFO Survey A 14:00 US- CB Confidence A 14:00 US- New Homes Sales Wed 25 Apr 2018 AA 14:30 US- EIA Crude Thu 26 Apr 2018 AA 11:45 EZ- ECB Decision A 12:30 US- Durable Goods A 12:30 US- Weekly Jobless Fri 27 Apr 2018 AA 03:00 JP- Bank of Japan A 08:00 DE- Employment A 08:30 GB- GDP A 14:00 US- University of Michigan
John M. Bland, MBA co-founding Partner, Global-View.com
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.