Newell Palmer: Monthly Economic Notes – July 2016

 

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Economic Overview

 

The UK’s momentous decision to leave the European Union brings long-lasting political and economic consequences. It is expected that European leaders will focus on fending off domestic populist movements emboldened by the British exit and on preventing the entire EU edifice from falling apart. This points to a tough negotiating stance toward the UK and less focus on much-needed structural reforms. It is expected attitudes on immigration to harden, and the risk of a protracted standoff feeding uncertainty.

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Monthly-Notes-July-20161.pdf

Newell Palmer: Monthly Economic Notes – June 2016

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Economic Overview

US economic data has been surprising to the upside over the last couple of months. However, none of the structural headwinds that seem to have plagued the global economy in recent years (a mix of excessive indebtedness, deteriorating demographics, rising political uncertainty as well as the end of the China growth miracle and the commodity supercycle) have been resolved. According to Citibank, the following are some reasons to be concerned for global growth:
1.The Chinese stabilisation could be even more short-lived than currently expected. Much of China’s growth has been reliant on increasing debt.
2.One contributor to the potential stabilisation in China’s and emerging market activity has been the weaker US dollar and receding expectations of a US rate hike. The market may be under-pricing Fed rate hikes over the next two years.
3.A US downturn could threaten. While most US data has been decent recently, it has not been very strong. This leads to some caution, especially if there is more economic weakness to come.
4.Political risks in Europe are high and rising. This includes, Brexit, the refugee crisis, elections in Spain and extremist parties in a variety of European countries.

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Monthly-Notes-June-2016.pdf

Newell Palmer: Monthly Economic Notes – May 2016

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Economic Overview

The emerging view is that the world has relied on monetary policy for too long and governments will have to embark on fiscal stimulus to boost their economies. Some central banks have pushed interest rates into negative territory, and it is now debatable whether further reducing already negative interest rates would further stimulate the economy.  Low and negative interest rates are harming savers and reducing their capacity to spend, and this is contractionary for the economy. The next step in policy would have to target spenders, rather than investors and savers, through measures that may include sending money to people directly or other fiscal measures.

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Newell Palmer - Monthly Economic Notes May 2016

Newell Palmer: Monthly Economic Notes – April 2016

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Economic Overview

Central bank policy intervention has dominated the investment landscape for the last eight years.  Monetary policy intervention has certainly been helpful as it has steered the world economy from a global depression during the global financial crisis.  With economic growth still stubbornly low in many regions, scepticism has grown about how effective monetary policy can be.  The IMF forecasts world growth this year at 2.5%, which is the same as in 2015 and well short of the 3.7% average over the five years leading up to the global financial crisis.  Quantitative easing, especially in the US, has been effective, but has come with consequences.  For example through the encouragement of possible capital misallocation by favouring equities and property over cash and fixed interest, thus fuelling possible asset class bubbles.

 

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Newell Palmer - Monthly Economic Notes April 2016

 

 

 

 

 

 

Newell Palmer: Monthly Economic Notes – March 2016

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Economic Overview

Anxiety among investors and in the market is greater than it has been for some time, despite the lack of substantive change in global fundamentals.  Volatility has gone up, but remains well below panic levels.  As with any market in which there are big price drops, opportunities are opening up, but having the conviction to act is another matter.  Central banks remain key drivers of sentiment and asset prices so will probably need to provide further support via lower or even negative rates before buyers return to the market.

 

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Newell Palmer - Monthly Economic Notes March 2016

Newell Palmer: Monthly Economic Notes – February 2016

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Economic Overview

Investors have to acknowledge a new set of risks tied to socioeconomic concerns that go far beyond the realm of traditional geopolitical hazards and have the potential to roil economic activity and financial markets. The confluence of new and old political risks threatens to undermine progress made through globalisation and foster a rise in conflict between, as well as within, nations.  That is the ominous conclusion of Citibank’s team of analysts and the Carnegie Europe think tank. Such traditional geopolitical risks as armed conflict and newer socioeconomic risks like income inequality, threaten to intersect in an environment where global growth is stagnating while public expectations remain high and government capacity to effect positive change through reforms is low.

 

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Newell Palmer - Monthly Economic Notes February 2016

Newell Palmer: Monthly Economic Notes – January 2016

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Economic Overview

Global growth is expected to remain fragile in 2016. Global trade and manufacturing activity will likely struggle, and additional growth scares should be expected. This will play out within the global macro economic themes of low inflation and global policy divergence. Across the developed world, deflation scares of 2015 are expected to give way to an environment of low, but no longer falling, inflation. The bulk of the oil price plunge has likely already occurred and the gradual fall in unemployment should stabilise or increase wage inflation, ensuring that deflation is less of a risk. The US Fed is expected to continue raising interest rates whilst other central banks continue stimulus. The US economy is expected to remain resilient and there would be continued expansion in Europe and Japan.

 

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Newell Palmer - Monthly Economic Notes January 2016

Newell Palmer: Monthly Economic Notes – December 2015

 

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Economic Overview

After months of uncertainty, investors are positioning themselves for the monetary policies of the US Federal Reserve and European Central Bank (ECB) to diverge.  Top US central bank officials have been saying for months that they believed the US economic recovery was nearly robust enough to withstand an increase in the benchmark rate from nearly zero.  In contrast, the head of the ECB has indicated that the ECB is about to inject more monetary stimulus into the Eurozone economy.

 

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Newell Palmer - Monthly Economic Notes December 2016