There are three, and arguably interrelated, known unknowns that are seemingly on everyone’s mind. First is the decline in global equity markets. Is this simply a long overdue correction? Wasn’t August 24 some sort of capitulation? Is this a re-test of those extremes, which is not particularly unusual, or is it the start of a new leg down?
The US dollar gained against most of the major currencies last week. A notable exception was the Japanese yen. Steep equity losses and drop in bond yields provided the yen with the customary fillip.
The various economic reports, including the August jobs data and the volatility of the stock market, left Fed expectations unchanged. The September Fed funds futures contract closed at 99.83 (implying a 17 bp effective average Fed funds rate this month). It has closed each of the past three weeks there.
The Schengen area has never tested to the same level as it is now. The unprecedented volume of refugees and migrants arriving in Europe has left its leaders struggling to cope. Germany’s chancellor, Angela Merkel, issued a sober warning that the crisis puts Schengen into question, while Italy says it is ready to impose border controls and Hungary has sealed off its main train station.
Russian Deputy Prime Minister Yuri Trutnev’s visit in August 2015 to Iturup, one of the four islands contested by Japan and Russia, flared up a war of words between the two countries. Shortly after the Russian Prime Minister Dmitry Medvedev also visited the island. The visits highlighted how the unresolved territorial dispute continues to be a major stumbling block in the bilateral relations, and that Moscow and Tokyo continue to hold divergent views on the implications of World War II.
The dovish signals from the ECB failed to offer lasting support for the global capital markets. Asia shares slumped, with the Nikkei falling to new lows since February and taking out the psychologically important 17k level. The MSCI Asia Pacific Index fell 1%. European bourses are off about 1.75%, with all major industry groups under pressures, led by financials.
In order to improve the effectiveness of development strategies in Indonesia’s Papua province, trust between the central government in Jakarta and the Papua provincial government in Jayapura needs strengthening. The PNPM-RESPEK initiative is a case in point.
The International Monetary Fund warns that financial turmoil could begin a vicious cycle that hurts global economic growth.
The largest Asian economy’s slowdown, combined with a bear trend in its stock market, could cause lower growth in the future. The IMF warned that China’s weakness is worse than anticipated in a new report, which predicts global growth will decelerate slightly to 3.3%, with China growing 6.8%, a large fall from 7.4% growth in 2014. The report also warned, “downside risks have risen” for the global economy.
The world’s ‘steering committee’ often refers to the G20 and in less than five months, China will be firmly behind the wheel. At recent G20 summits and meetings in Beijing and Shanghai, government officials, academics and business representatives were asking two questions: what should China do with its G20 presidency and what sort of leader will it be?
The closure of Chinese markets today has removed an agitator and contributed to the calmer tone in the global capital markets. Sweden’s Riskbank decision to policy on hold has sent the krona up nearly 1% against the US dollar. It is the big mover.
South Korean President Park Geun-hye will visit China from September 2–4 to attend Beijing’s official activities to mark the 70th anniversary of the end of World War II, including a military parade on 3 September. Her visit comes fresh off the heels of inter-Korean tensions triggered by a North Korean landmine that maimed two South Korean soldiers. Though the situation is calming, North Korea remains a security challenge for both China and South Korea and is likely to dominate talks between Park and Chinese President Xi Jinping.
