3 Stories in the global economy that should not go un-noticed
Markets ended the last trading day of August in the red, with the Dow and S&P 500 posting their worst monthly declines since May 2012. Trading was slow on Friday as worries about the escalating Syria situation and the Fed appear to have discouraged some investors.
For the week, the S&P 500 lost 1.84%, the Dow lost 1.33%, and the Nasdaq lost 1.86%.
Here are the 3 stories this week that rose above the noise:
Giant Reality Check
Concerns remain over the extent of bad debts in China’s banking system. Official data on non-performing loans puts China’s bad debts at 1 percent of bank assets but there is a lot of skepticism over that number. Morgan Stanley estimates a more realistic figure may be 10 percent for all banks and 6 percent to 8 percent for the biggest.
Positively, since China’s sovereign debt is a relatively low 30 percent, it has the potential to absorb bad debts in its banking system (as it has in the past). The implications of reduced lending from China’s large banks to the country’s state-owned enterprises may be shifting in the years ahead. One potential silver lining: loans to small companies and households, which together made up just 22 percent of the total in 2006, are forecast to soar to 57 percent of all loans by 2021, according to McKinsey Consultancy.
As Summers’s Odds Rise, Stimulus Easing Is Seen
One significant uncertainty that markets face in the coming months is the looming nomination of the next chairman of the Federal Reserve. There is an increasingly popular view that President Obama will nominate Larry Summers to succeed Ben Bernanke, and a recent article from The New York Times details some reasons why this speculation may be creating market volatility and contributing to the recent rise in interest rates.
Specifically, Summers’ views on current monetary policy are unclear and his past statements have expressed some skepticism over the Fed’s quantitative easing programs. The uncertainty concerning future monetary policy which has contributed to recent market volatility is unlikely to subside in the near-term and this article details some reasons why the nomination of Summers may unsettle financial markets more than the nomination of someone who is more closely aligned with the Fed’s current policies.
Euro-Area Manufacturing Expands on Surge in Italy, Spain
Manufacturing activity in Europe expanded for the second consecutive month, rising to a 26-month high in August. Economic activity in Europe is continuing to stabilize, following a six-quarter-long recession that ended in the second quarter. Growth in manufacturing activity has been broad-based as several countries including Germany, Italy and Spain are experiencing their fastest growth in manufacturing in over two years. Additionally, economic confidence in Europe rose to a two-year high last month.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
