Monthly Archives: February 2011

This week, the political upheaval in the Middle East spread to Libya, and therefore really began to hit the the oil market for the first time. Oil prices briefly hit levels which were 50 per cent above the average levels of last summer – which, if maintained, would represent a medium sized oil shock. Yet global equities suffered nothing more than a minor dent, and global bonds rallied markedly.

Elsewhere, the US Congress failed to make progress towards an agreement on raising the public debt ceiling. A permanent stand-off in Congress may be only a remote prospect, but it would be a catastrophic event for the world economy if it happened. Read more

When the first estimate of UK GDP in 2010 Q4 showed a fall of 0.5 per cent, I commented in this blog that this news was “too bad to be true”. The second estimate for Q4 came out this morning and, sure enough, the figures were – worse. Undaunted, I am still strongly of the view that this depressing quarter does not give an accurate reading on the true state of the UK economy at present. Most other information points to a continuation of reasonably healthy growth in recent months, and a strong bounce-back in the official GDP number is still to be expected in Q1. Read more

Each of the last five major downturns in global economic activity has been immediately preceded by a major spike in oil prices. Sometimes (eg in the 1970s and in 1990), the surge in oil prices has been due to supply restrictions, triggered by OPEC or by war in the Middle East. Read more

Apart from the continuing political instability in the Middle East, the most important macro events of the week were focused on inflation. We have known for a while that headline inflation is now rising, especially in the emerging world, because of the increases in food and energy prices. Now it appears that core inflation is also rising, despite the very large output gaps in most developed economies. Central bankers are now seriously split on whether to tighten policy, but the majority view still seems to be dovish. Read more

The US unemployment rate has dropped from 9.8 per cent to 9.0 per cent in the last two months, and there have been signs that private sector employment may soon be rising at about 200,000 per month. Admittedly, this improvement is still a very minor one compared to the massive deterioration in employment which occurred in 2008-09, when 8.5 m jobs were lost in the economy. But at least the change is now in the right direction. (See this earlier blog.) Read more

China’s GDP growth made news this week because, on the official figures, China overtook Japan to become the second largest economy in the world in 2010. But actually, on a different way of calculating the data, this was very old news. Using purchasing power parity, China not only overtook Japan way back in 2001, but it is also quite close to overtaking the US as the biggest economy in the world – if, indeed, it has not done so already.

GDP statistics measure the amount of value added or income in the economy, measured in domestic currencies, over a given period of time. But it is more difficult to compare the GDP in one economy (China) with that in another economy (Japan), because we need to use an exchange rate which translates yuan into yen or vice versa. This is not as straightforward as it may seem. Read more

This week in global macro, the emerging markets reminded us that they are, well, emerging markets. The Egyptian crisis may have moved towards resolution, but there are risks of contagion elsewhere in the region. India continues to be the worst performing stock market of the year, and China is slowing under the weight of tightening monetary policy.

Developed equity markets continue to out-perform, although headline inflation is rising, notably in the UK. Although many people are claiming that the Bank of England is losing credibility, that is not yet showing in the gilt market. In the US, there were some signs of greater hawkishness from certain members of the FOMC, but none where it really counts – which is in the minds of Ben Bernanke and his senior lieutenants. The US equity market ended the week at its highest level since June 2008. Read more

When the Queen asked asked an academic at the LSE why the economics profession had failed to predict the credit crunch, she raised a topic which continues to resonate. In fact, the IMF’s watchdog criticised the organisation on exactly those grounds yesterday.  Read more

This week, the dramatic events in Egypt failed to unsettle the global financial markets. Not only do investors believe that Egypt itself is not critical for global oil prices, they also seem to believe that there will be relatively little contagion to the more important oil producing states elsewhere in the Middle East. Read more

The US employment figures for January need more interpretation than usual, because adverse weather effects, benchmark revisions to past data, and changes to population estimates have all come together this month to cloud the picture.

Furthermore, the unemployment figures are currently telling a very different story from the employment figures, which needs explaining. Having examined all the data, my own interpretation is that the underlying state of the labour market is definitely improving, and is probably improving at a slightly faster pace than it was a few months ago. Read more

The era in which central bankers could apparently do no wrong ended emphatically in 2008. Since then, they have attracted plenty of criticism as they have adopted a succession of unconventional policies to stabilise the world economy and financial system. Read more

The global financial markets have been remarkably stable this week, considering the dramatic events which have been taking place in the Middle East. Whether this complacency is about to be shattered remains to be seen. After all, there are plenty of reasons for real concern when the world’s largest oil producing region shows signs of mounting political instability, as Nouriel Roubini emphasises in the FT today. But there are also grounds for hoping that the Egyptian crisis might be resolved without causing disruption in the neighbouring Gulf states which contain the vast majority of the region’s oil supplies.

And meanwhile optimism has been boosted by this week’s business survey data, which show that the world economy is in increasingly robust condition as 2011 begins. The markets seem disposed to see the glass as half full for the time being. Read more