Global Recession Risk Rises to 30pc This Year Warn Morgan Stanley
Date
3/16/2016 5:59:48 AM
(MENAFN- ProactiveInvestors - UK) Fuller Treacy Money 09:15
Global Recession Risk Rises to 30pc This Year Warn Morgan Stanley
Here is the opening of this sobering article from The Telegraph:
There is a near one in three chance the world economy will slip back in to recession this year as low oil prices and extraordinary monetary stimulus have a dwindling impact on global growth Morgan Stanley has warned.
The US investment bank said a "low growth environment" had made the world vulnerable to a litany of shocks including fears that central banks have lost control over domestic financial conditions while rising political risks from Europe to the Middle East threaten to overwhelm governments.
Global growth is forecast to hit just 3pc this year down from Morgan Stanley's earlier estimate of 3.3pc with advanced world growth falling to 1.5pc.
Japan received the biggest single downgrade of any country with GDP slashed in half to just 0.6pc from 1.2pc.
Global GDP fell to 2.3pc in the last quarter of 2015 - below the 2.5pc threshold which marks a recession - forcing Morgan Stanley to raise their global recession risk probability from 20pc to 30pc.
"The renewed slowdown in global growth late last year has pushed the risk of a recession higher" said Elga Bartsch at Morgan Stanley.
Despite a record crash in global oil prices over the last 20 months - widely seen as a tax cut for the world's oil consumers - the positive effects of lower oil prices were not as pronounced as previous eras said the investment bank.
It noted that fuel high taxation in many countries meant many consumers were failing to see the full benefits at the pumps while investment was collapsing in major producer countries such as the US.
Contrary to many expectations consumers in the advanced world have also failed to spend the windfall from lower prices opting instead to pay down debts and save. Lower consumption levels have thus weighed down on economic activity.
"The global economy does not seem to be as responsive [to lower oil prices] as it has been in the past" said Ms Bartsch.
Their bearish outlook was also driven by the inability of central banks "to pull the global economy out of its low-growth lowflation rut".
David Fuller's view
Of course a 30% global recession risk means there is a 70% chance it will not happen and even if it does that arbitrary 2.5% threshold mentioned above is hardly a disaster. Some countries can only dream of 2.5% GDP growth this year including Japan most of the EU and the USA may even dip beneath that level.
What is wrong with the global economy?
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The Weekly View: Why We Believe Negative Interest Rates Will Drive Growth
Here is a brief sample from The Weekly View:
We believe that the just-announced ECB stimulus measures include a creative potential solution to the impact of NIRP [negative interest rate policy] on bank earnings. The most productive way for banks to avoid the NIRP charge on excess reserves is to use up those reserves by making loans and the new ECB policy has a carrot-and-stick approach to encourage bank lending. Banks that hit certain loan growth targets will be able to borrow from the ECB at negative interest rates. Thus banks that make loans will both receive the benefits of a negative rate (the carrot) while also avoiding the NIRP fee (the stick). This new funding program essentially pays banks to lend money and could provide significant economic stimulus through increased bank lending. Borrowers would receive the ultra-low interest rates made possible by negative interest rate funding and thus loan demand may also increase under this program.
David Fuller's view
Mario Draghi who conceived and implemented this policy remains one of the most brilliant Central Bankers in my opinion. However he looks tired and has to suffer EU political fools gladly. Where are their policies for economic growth? Should Draghi decide to retire sooner rather than later it is hard to imagine how the farraginous EU would survive.
A PDF of The Weekly View is in the Subscriber's Area.
My personal portfolio
Two medium-term trades rolled forward
David Fuller's view
Details and charts are in the Subscriber's Area.
Valeant Plunges Most Ever on Forecast Cut Warning Over Debt
This article by Cynthia Koons and Caroline Chen for Bloomberg may be of interest to subscribers. Here is a section:
'We have to earn back the credibility' Pearson said in his first public remarks since returning from a medical leave two weeks ago. 'We have to deliver on results. We have to meet or exceed this guidance' Pearson said during the call. 'It's a bit of a starting over point for me and this company.'
Laval Quebec-based Valeant is at risk of violating its debt agreements putting it at the mercy of its creditors since it will be late filing its annual report. Valeant said it must file its 10-K by March 30 to avoid triggering cross-defaults that would restrict it from being able to further tap its credit line. It won't be able to meet that deadline and will begin asking lenders next week to amend the credit agreement so that a default is waived.
Eoin Treacy's view
in the lengthy conference call this morning Valeant corrected what they called a typo in the press release which had overstated earnings they announced they were changing the way they calculated the tax they paid and announced that guidance would be lower. Investors took flight and the share fell 51.80%.
Email of the day on coffee:
I am fine and I hope you are in good condition also.
In order to give you some feedback about Arabica I make the following comments.
Arabica seems to be bottoming out with recently a strong reaction to the upside.
120 cents per pound has always been an at least an intermediate floor under the market dating from the minimum price of 120 cents of the International Coffee Agreement in the seventies.
The present reaction is also linked to the prices of oil and of the Real the Brazilian currency. I suggest you have a look at the charts of these where you can observe a reversion to the mean of oil.
Also other commodities minerals and metals produced by Brazil became more expensive. The consequence is that the Real became stronger after a descent from 065 USD to 025 USD. When the Real becomes suddenly more expensive the mechanical consequence is that more dollar cents have to be paid for a pound of Arabica of which Brazil is the largest producer in the world.
That being said a large crop is being expected for the 2016/2017 season as well in Brazil as in Colombia and in Vietnam the three main coffee producers. So for the moment there are no fundamental reasons for the present breakout of Arabica to lead to sky high prices. However as you very well know charts give always a clear independent view and seem to indicate that a balance between supply and demand has been found. It could be that bears will be taking profits for a while leading to higher prices in the short and medium term. Physical balance is one thing and terminal market positions are another thing.
With kind regards and always available for further comments.
Eoin Treacy's view
Thanks to this highly experienced subscriber who generously contributed this email in response to a request I sent asking for information. It is safe to say he has forgotten more about the coffee market than I ever hope to know.
Email of the day on next generation batteries
Have you seen this :- World First: Graphene Battery Plant Gears up for 2016 Commercial Production Spanish company Graphenano has introduced a graphene polymer battery it says could allow electric vehicles to have a maximum range of up to 497 miles. The battery can also be charged in just a few minutes is not prone to explosions like lithium batteries and can charge faster than a standard lithium ion battery by a factor of 33. The batteries are expected to be manufactured in Yecla Spain and will have an energy density of 1000 Wh/kg. For perspective conventional lithium batteries have an average energy density of just 180 Wh/kg. To top it all off the battery does not exhibit memory effect a phenomenon in which charging a battery multiple times lowers its maximum charge
Eoin Treacy's view
Thank you for this snippet and no I had not previously heard of Graphenano but it captured my attention because it sounds almost too good to be true.
Fuller Treacy Money