The main drivers this morning were oil and gold. But oil did a major about face and fell mid-day after a stream of negative economic data underlined that slowing growth and spiking inflation are inflicting economic stress around the world. The on-going "disconnect" between recently soaring equity markets and relentlessly plunging economic data is nothing if not striking.
Today the Organization of Economic Cooperation and Development (OECD) warned that the composite of leading economic indicators (CLI) show the economic downturn in the US is truly going global. See OECD warning as stagflation goes global.
“The OECD's early warning signal is flashing clear signs of economic weakness across the world, with mounting evidence that China, India, and Brazil may soon succumb to the downturn. The closely-watched gauge -- known as the Composite Leading Indicators (CLI) -- has picked up a sharp deterioration in the eurozone in March, notably in Italy and France where the advance signals are falling even faster than in Britain. The measure tends to anticipate the industrial cycle by about six months.”
Even in emerging markets, building inflation and slowing demand is starting to hamper business confidence. Of the rising powers of Brazil, Russia, India and China, only Russia continues to boom.
Prices across the emerging world are reaching levels that threaten stability and force governments to raise interest rates even in the midst of falling growth. Global stagflation has been an underlying rumour for many months now but recently inflation rates spurred by the weak US dollar and spiking commodity prices are increasingly difficult to ignore:
Reported inflation rates: “Venezuela (22pc), Vietnam (21pc), Latvia (18pc), Qatar (17pc), Pakistan (17pc), Egypt (16pc) Bulgaria (15pc), The Emirates (11pc), Estonia (11pc), Turkey (9.7), Indonesia (9pc) Saudi Arabia (9.6pc), Argentina (8.9pc), Romania (8.6pc), China (8.5pc), Philippines (8.3pc), and India (7.6pc).
Many of these countries are now suffering the worst prices spiral in thirty years, setting off widespread riots. India's government has suspended futures for a clutch of key commodities as states resort to draconian measures."
Very interesting times we live in. The next US President is likely to be the one that promises more than lip service to a strong US dollar. Paul Volker, the infamous inflation-fighting Federal Reserve Chair that brought the last high inflation period of the 70’s to an end, has recently endorsed Obama for President. My thinking: Volker is exactly the guy I would want to mentor me if I were trying to steer US economic policy over the next 4 years. Today, more than ever, we need the old guys with real life experience in these conditions to help navigate our generation through current hurdles.
