This year will bring either vigorous recovery or a return to global recession. We look at the factors that will affect the outcome of a pivotal 12 months.
A pro-Russian separatist looks through binoculars at a check point on the outskirts of Donetsk in Ukraine. The failing Russian economy could spur Vladimir Putin to harden his stance in Ukraine, with knock-on effects on Russia's neighbours and the euro zone. Photograph: Maxim Shemetov/REUTERS
The world economy enters 2015 at a fork in the road. One track leads to the self-sustaining vigorous recovery that policy makers have sought in vain ever since the financial crisis erupted in 2007. Lower oil prices get consumers spending and businesses investing. Memories of the biggest recession since the 1930s are finally banished. The rest of the world starts to look like a revitalised US.
The other track leads back towards recession. Problems that have been stored up since 2008-09 can be contained no longer. A financial crisis erupts in the emerging markets. China has a hard landing. Greece sparks off a fresh phase to the eurozone’s struggle for survival. Deflation sets in. The rest of the world starts to look like Japan. Here, then, are five issues that will define a make-or-break year.
Russia and the Ukraine
The Russian economy will go into deep freeze in 2015. Even before the dramatic plunge in the rouble in the weeks running up to Christmas, the central bank was predicting a fall in output of 4.5%. Pushing up interest rates from 10.5% to 17% in one move may well help to stabilise the rouble and prevent further capital flight – but at a cost. Neil Shearing of Capital Economics says history is about to repeat itself; just as after the debt default of 1998, Russia is “staring down the barrel of a deep recession”. The depth of that slump, Shearing says, will depend on what happens to the price of oil and whether the west lifts the economic sanctions that it has gradually been intensifying since last spring.
Two other things are also unclear. Firstly, how Vladimir Putin will respond. The Russian president offered the people a bargain: accept a hard man in the Kremlin in return for rising living standards. That deal will be broken in 2015, and there is no guarantee that it will encourage the Kremlin to take a softer line over Ukraine. On the contrary, a failing economy could spur Putin into acts of nationalist defiance. That would not just intensify the recession; it would also have knock-on effects for Russia’s neighbours and for the eurozone.
The second unknown is whether Russia will be a special case. The fear is that it will set off a chain reaction across other emerging markets that have attracted the copious amounts of footloose capital generated by the quantitative-easing (money-creation) programmes of the world’s central banks. Turkey and Indonesia and are two big countries to look out for.
Oil
In the summer of 2014, a barrel of Brent crude was changing hands at $115 a barrel. By Christmas it could be obtained for barely half that price. The big drop in the oil price is positive for global growth: it puts more spending power in the hands of consumers and it cuts costs for businesses. The link between the cost of crude and the world economy is well established: the long booms of 1948-1973 and the 15-year period that preceded the great recession of 2008-09 were both built on cheap oil. The four recessions of the postwar era (1974-75, 1981-82, 1990-91 and 2008-09) have all been associated with rising oil prices. Trevor Greetham, director of asset allocation at Fidelity Solutions, says: “A low oil price is a stimulus for consumers. Global growth should pick up over 2015 and there are as yet few signs of the kind of inflation that would necessitate meaningful monetary tightening.”
But there is a caveat. Greetham says the plunging oil price could prompt “credit stress”. This would affect governments, such as Russia, Venezuela and Iran, that can only balance their books if the oil price is at $100 a barrel or more. And it would affect the shale gas sector in the US, where much of the investment has been financed by high-yielding but risky junk bonds. As the Bank of England points out in its recentFinancial Stability Review: “As US oil and gas exploration firms account for 13% of outstanding debt in US high-yield bond markets, an increase in the preceived or realised credit risk in this sector could lead to sales by investors and potentially illiquidity in the broader high-yield market”. In other words, shale could be the next sub-prime.
China
China will be crucial to the performance of the global economy in 2015. Depending on the yardstick used, it is now the world’s biggest economy. It is also, according to Kenneth Culkier of the Economist magazine, a net exporter of foreign direct investment. China could soon join the select club of countries with a reserve currency.
But 2014 has been an uneasy year, as Beijing has tried to mop up the credit excesses left behind after the growth-at-all-costs approach adopted during the deep downturn of late 2008. Policy makers have been running a tight ship and the constraints on credit have started to bite. Growth will be lower in 2015: the question is how much lower.
A marked slowdown would affect the rest of the world in two big ways. First, exports to China would weaken. This would affect countries such as Germany, which sell the machine tools needed for China’s industrial expansion, and those, such as Australia, that provide China with its raw materials. A sluggish Chinese economy in 2015 will compound a low oil price.
Second, China will export deflation to the rest of the world. The prices of goods leaving China are already falling and that trend will continue. The US and Europe will be flooded with cheap Chinese goods, driving down inflation. In the case of the eurozone, it may result in deflation. Central banks, faced with inflation being well below target, will be cautious about raising interest rates even if their economies are growing at a healthy rate, risking the recreation of the conditions that led to the pre-2007 asset bubbles.
US
Next year will be hugely significant for Janet Yellen and her colleagues at the Federal Reserve, and for global markets. A focus for investors in the new year will be the timing of the first rise in interest rates. Rates have been in a record low range of between zero and 0.25% since December 2008, but the economy has been gaining momentum in recent months. The Fed has already called time on its $4.5tn bond-buying programme, completing its final purchases in October. Winding the clock back to May 2013, then chairman Ben Bernanke triggered a so-called “taper tantrum” when he suggested the Fed might start slowing the rate of its bond-buying sooner than markets were expecting. Investors – hooked on ultra-loose monetary policy since the crisis fully erupted in 2008 – took fright and triggered a fresh wave of volatility.
Given we’re talking about the world’s largest economy, speculation on the first rate rise will have repercussions around the world. Investors will scrutinise Fed statements for any change in tone that might indicate when the first increase will come. Until it does come, uncertainty – despised by markets – will reign. At its latest policy meeting in December, the Fed dropped its insistence that rates would be kept on hold for a “considerable period”, replacing it with the message that it could be “patient” about policy changes. Within minutes of the statement, New York’s Dow Jones Industrial Average shot up 1.5%, as investors interpreted it as a signal that there would be no mad rush to raise rates. However, if the economic data in the coming weeks and months continues to reflect a strengthening US economy, the Fed’s patience may wear thin. Expect market volatility when the central bank drops its cautious tone as it paves the way for the first rate rise since the great recession.
Eurozone
The eurozone is the crisis that keeps on giving, and there is every reason to believe this will remain the case in 2015. Mario Draghi, the eloquent president of the European Central Bank, lifted the single currency bloc out of the worst phase of the crisis in the summer of 2012 simply by saying that he would do “whatever it takes” to save the euro. But he now faces one of his biggest challenges yet.
In 2014, the story in the eurozone was one of a recovery that failed to get off the ground and of the mounting threat of deflation. Neither of those problems has gone away, with growth of just 0.2% in the third quarter of 2014 and an annual inflation rate of 0.3% at last count in November. Greece and Spain are already stuck in a deflationary rut and there is concern that a dangerous deflationary spiral will spread to the rest of the region. The fear is that as prices continue to fall, businesses and consumers will delay spending plans as they expect prices to fall further. With a backdrop of weak growth, low oil prices and general lack of inflationary pressures, the ECB’s battle against deflation will continue well into 2015.
Measures announced in 2014 – including charging banks to park cash with the central bank in a bid to encourage more lending – have failed to provide a silver bullet. The bank has one weapon left up its sleeve: full-blown quantitative easing.
So far the eurozone’s policymakers have failed to take the plunge with QE, largely as a result of forceful opposition from Germany. But 2015 could be the year to abandon the hints and throw the kitchen sink at the problem. More weak data from the eurozone will make investors nervy. Failure to press the QE button in the face of weakness could trigger outright panic.
The relevance for the UK is huge: policymakers at the Bank of England and within government have repeatedly warned that fragility in the eurozone is one of the biggest threats to the UK recovery, not least because it is Britain’s biggest trading partner.
Predictions for 2015 point to the possibility of World War 3 as tensions between Russia and neighboring countries — as well as the United States — appear to be reaching a boiling point.
In the past several months, Russia has taken an ultra-aggressive stance toward neighboring countries, sending troops into Ukraine to support pro-Russia rebels, conducting nuclear exercises, and sending dozens of airplanes toward neighboring airspaces in an attempt to test NATO defenses.
Now some experts predict that the tensions could eventually turn into World War 3 in the coming year, though it may look drastically different from the first two World Wars.
Dr. Philippa Malmgren, a former presidential adviser and member of the U.S. President’s Working Group on Financial Markets, said in an interview with King World News that the United States could enter a large-scale conflict that utilizes a heavy focus on the use of technology.
Malmgren said the recent military activity by Russia may have been part of this new conflict.
“The United States, Russia, and China are all vying for dominance over high-altitude satellites, which dominate all the guidance and communications systems for the conduct of warfare. And increasingly (we are seeing) stealthy methods of conducting conflict.
“For example, the Russians have been very active recently in showing their dominance in the Baltic Sea, which dictates who dominants Scandinavia and the Baltic countries. And in doing that, it’s not that they have so many ships or better quality ships, it’s how effectively they’ve been able to show they can take territory if they want to.
“The Danes released a report showing that during the largest naval exercise held last summer by the Russians, since the Soviet period, in part what they were doing was practicing taking and seizing an island in the Baltic which currently belongs to Denmark. And it was so interesting they (Russia) picked the very week that the Danes held the equivalent of Davos — the meeting where every single political leader in that nation happens to be on that island at that time.
But other 2015 predictions point toward a real World War 3, with Ukraine being the flash point. The long-simmering conflict does not appear to be reaching a solution, which was highlighted this week when peace talks were called off. Ukrainian officials have accused Russia of threatening to use nuclear weapons if the conflict were to drag on too long.
Read more at http://www.inquisitr.com/1706774/2015-predictions-world-war-3-could-be-inevitable-as-russia-leads-world-into-new-kind-of-conflict/#IADxxhpgM5bXXAty.99
One statement reported on by FT basically says it all, making it clear that Russia is gearing up for World War III and there is nothing that can stop it at this point.
The initial story is about the recent news of a $50 billion judgement against Russia, and the details of that can be seen at the FT article(free subscription) and in the video below, but it is the last paragraph of the FT article about a statement made by a person close to Russian President Vladimir Putin, that really brings the reality of what is coming, home.
One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine. “There is a war coming in Europe,” he said. “Do you really think this matters?”
That is what everyone has been gearing up for. That is why the Ukraine situation was set up, orchestrated and preparations are being made to pull out old war plans from the cold war era.
WW III is what all of it has been about and we were warned consistently that this would happen because when global economies are ready to crash, war is the option TPTB always fall back to.
The Indian Industrial Production
(IIP) came at minus 4.2 %; the expectation was at 2.4% just near the previous
release of 2.5%. It was not alone to blow the economy. Other data were also equally
negative which will hit the growth of the Indian economy. Forex Reserves fell
to US 314.66 billion from the previous release of US 316.31 billion, drop by US
1.65 billion. The holding of the reserve is reduced due to the heavy balance of
payment adjustments. Manufacturing output came at negative 7.6% from the
previous release of 2.5%, shows the manufacturing growth in the economy is
falling sharply. Consumer price index came at 4.38% from the previous release
of 5.52% just below the expectation of 4.63%; showing the consumer are looking
further drop in the price of consumer goods in near future. Low impact data
which came along were Cumulative Industrial Production and Deposit Growth both
came lower then expectation, whereas Bank Loan growth has increase
marginally.
Nifty from the chart
we have seen an uptrend in market from March 2009 onwards, where market has
taken support after the 2008 crash. In year December 2008 nifty was trading
around 6300, which was all time high and suddenly market cracked due to global recession.
But market recovered from the lows immediately in 2009 and again tested the
higher level of 6345 same high from seen in 2008, but there was a rise in index
alone, stocks prices did not recover much. Price movement from 2525 point A to
6345 point B was 3820 points. Market respected the resistance level of 6345 and
retraced to point C at 4535 level, nearing the 50% retracement of 4430
deviating by 100 points. By the year end 2013 December resistance level of 4345
was breached and tested the all time high of 8665.
If we calculate
as per the theory of ABC price movement, point D of 8665 exactly comes at 161.8%
expansion of the rally from point A to Point B, calculating from point C. To be
precise 161.8% comes to 8700 level and nifty reverted just before breaching
this level. Now considering the fact
market has rallied one way from in past three months from 7750 to recent top of
8660 there has do be a correction in market. We expect nifty should correct
minimum by 50% of the rally from point C at 4535 to point D at 8665 which comes
to 6600 level. This correction till 6600 will bring to the strong support of
6350 which was once considered as strong resistance. If in worst case if nifty
breach and sustain its trading below 6350 on weekly basis we might look at a
falling knife in market with double edged, where the panic selling will come
and nifty will drift to 4500 which was point C support and next extreme case
support of 3400 level.
There are many reasons
for this huge correction in the financial market which is supported by
following fundamentals.
·The VIX – the ‘Volatility Index’ – has dropped to 9.3 on
November 25th, the same reading last seen in 2007 where the world
financial markets were ridding for the fall.
oThis is what happened after the VIX hit
a low of 10.02 in February 2007. Stock markets were soaring at the time, but
then got clobbered by the credit crisis and all the disastrous events that
followed.
oThe VIX went on to hit an all-time
high of 79.13 in October 2008, when governments were scrambling to bail out
bust banks and fears were rife of a total meltdown in the world financial
system.
·Prices of Crude oil are expected to test USD 55 per barrel to
USD 38 per barrel, which is supported by the excess supply from the OPEC
country that is not ready to reduce the output. US have started its own Shell
oil production reducing the dependability from the gulf countries. Globally the
demand for crude oil is reducing from many countries as they are entering in
the recession phase.
·Countries like Japan and Europe have already entered in the
recession phase, but from today’s announcement Chinas government said lower
rated bonds can no longer be used as collateral, Shanghai Composite Index
headed for biggest loss since August 2009
·Federal Reserve Bank have infused huge amount of funds in to the
economy in the form of quantitative easing program, but was not able to change
the intrest rate which is still at all time low. Although the Unemployment and
Labor market are showing sigh of improvement, inflation is still at the lower
level. Dollar index is trading positive in last 6 months, is well above 89 but
is failing to hold the higher level where 90 is expected resistance level. Till the time we do not see any improvement in
Inflation figure, sustainability of the growth will be doubt and if this
happens Dollar will also fall with global growth slowdown.
·Dow Jones is
continuously trading higher from the bottom of 2009, with a small correction
was seen in mid 2011. There was not such a huge change in fundamentals, but the
funds which came in form of quantitative easing went to the stock market. And
once the bubble which is expected to bust might bring the greater panic then
what we have seen in 2008. If this happen then we might not look at sharp
reversal what we have seen in 2009, but we will be consolidating at the lower
level fighting for the growth.
Presently we are the
‘Peak’ of the economic cycle, which is followed by ‘Recession’ where many
countries have entered into the phase where they are facing recession phase.
Then there comes the ‘Trough’ where sustain near the trough will be tough time
for global recovery. Sooner the recovery from trough less is the chances of
entering in to the war type situation.
India 50 (Nifty 50) since 2014 May has been trading in the side
way to upside moving channel and making higher high and with five consecutive
high and rising support have formed the Pattern formation of Rising Wedge
pattern. This pattern is still in the formation stage and only break below 7700
will confirm the down trend. Though once can take a pre decisive move and enter
at current price which is near 8000 and also at the rising trend line where it
has always reverted from. Suppose this pattern holds true and market trade
below 7700 in September by 2nd week then we might look at the profit
booking which might drag soon the market to minimum of 6660 as first support
and then the level 1 target of 6070 on lower side. Height of the wedge from
7620 to 6660 is 960 points and break below 7700 will bring to support of 6740
as first support, Level I which I have taken a rise from 5990 to 7620,
difference comes to 1630 points and break below 7700 target comes to 6070 as
second support. Level II which I have taken from 5105 to the top of 7620 where
the difference comes to 2515 points and break below 7700 bring to the target of
5185 which will be at the strongest support where value buying might comes in
picture for enter in long term buying with support of 5100 was seen in August
2013.
1.Prior Trend:In order to qualify as a reversal pattern, there must be a
prior trend to reverse. The rising wedge usually forms over a 3-6 month period
and can mark an intermediate or long-term trend reversal. Sometimes the current
trend is totally contained within the rising wedge; other times the pattern
will form after an extended advance.
2.Upper
Resistance Line:It
takes at least two reaction highs to form the upperresistanceline, ideally three. Each reaction
high should be higher than the previous high. Lower Support Line:At least two reaction lows are
required to form the lowersupportline. Each reaction low should be
higher than the previous low.
3.Contraction:The upper resistance line and lower support line converge
as the pattern matures. The advances from the reaction lows (lower support
line) become shorter and shorter, which makes the rallies unconvincing. This
creates an upper resistance line that fails to keep pace with the slope of the
lower support line and indicates a supply overhang as prices increase.
4.Support Break:Bearish confirmation of the pattern does not come until
the support line is broken in a convincing fashion. It is sometimes prudent to
wait for a break of the previous reaction low. Once support is broken, there
can sometimes be a reaction rally to test the newfound resistance level. Volume:Ideally,volumewill decline as prices rise and the
wedge evolves. An expansion of volume on the support line break can be taken as
bearish confirmation.
