3 Stories in the global economy that should not go un-noticed
In a rare confluence of events, Monday was both a national holiday and the inauguration of President Obama’s second term, starting the week off fairly quiet for markets. There are also relatively few economic reports released this week, meaning that traders will turn their attention to remaining earnings reports from firms like Google (GOOG), Starbucks (SBUX), and McDonald’s (MCD). Investors will also be paying close attention to new reports about the strength of the housing market, which are widely expected to show a continued recovery.
Here are the 3 stories this week that rose above the noise:
House Republicans Retreat on Debt Ceiling Fight by Suspending the Limit until May 19
The Republican-led U.S. House of Representatives announced it plans to vote on a bill as soon as January 23 to temporarily suspend the U.S. debt limit until May 19. The House suspension plan is accompanied by a caveat: Congress must pass a budget resolution for the next fiscal year by April 15. If either the Senate or the House fails to pass a budget resolution by that time, pay for the members of that chamber will be withheld in an escrow account until they approve one.
Cheap Stocks and Reform Hopes Lift China
This year’s movement in the Chinese equity markets is being closely watched by analysts and investors. After falling to a three-year low in the first week of December, the benchmark Shanghai Composite Index has increased 18.4 percent to a seven-month high, while trading volumes have spiked to their highest levels since early 2011.
This CNBC article attributes the gain to the fact that Chinese equities were too cheap based on price-to-earnings ratios falling significantly below historic norms. Additionally, recent economic data has pointed to a stronger economic outlook. However, some analysts caution that the best of the gains have already occurred and are concerned about the sustainability of the economic recovery.
View from the Bridge
A recent article from The Economist discusses current and potential future trends in global trade as they relate to one of America’s busiest ports: Long Beach, Calif. The port of Long Beach can be viewed as an important indicator of the health of U.S. trade with Asia. Over the past two decades, trade with Asia has increased dramatically, and the outlook for the future remains strong. More than $5 billion is being spent on new infrastructure in Long Beach and Los Angeles to handle larger ships. Exports out of Long Beach are also increasing, up more than 38 percent since 2009. Future shipments of liquefied natural gas are likely as the U.S. develops large gas deposits and China’s demand for energy continues. Other trade routes such as the China-Brazil connection and the Panama Canal may become larger hubs and compete with Long Beach. However, future activity paints a bright picture for future U.S. trade with Asia.