(Photo: Reuters)
(Photo: Reuters)

After a week in which fortunes were made and lost even the biggest rollers must be tempted to trim their bets until markets become less febrile.

The strong finish in US equities on Friday should help to spread calm and some order was also restored in US Treasuries and the dollar.

It is, however, clear that investors do not welcome any diminishing of the Federal Open Market Committee (FOMC) cornucopia and are not persuaded by any soppy talk of a Goldilocks scenario.


The main casualties look like the emerging market equities and bonds, many of which have now been hit very hard.

Some equity markets were due for some sort of correction anyway and may be through the worst. In contrast, yields on many bond issues have probably turned for good.

Yields on European peripheral bonds are also very probably past their low point and the widening of spreads over bunds over the last two week shows that a lot of hot money has suddenly departed both eastwards and westwards.

Japanese equities, after a crazy week, are more difficult to call this week but bargain hunting should limit further plunges.

Whatever happens to prices, the yen will move in the opposite direction

'Normal' service should resume on gold (downwards) and the dollar (upwards) when investors come to terms with the prospect of QE being tapered.

Elsewhere, collapse has never really looked likely but it may well still be best to watch and wait, while boggling over the risks some punters will take in the pursuit of returns of 20% or more.


The first US President Barack Obama - China President Xi Jinping summit was apparently requested by China, which quite usefully illustrates the reality that Xi, who is essentially a 'seller', needs Obama (a 'buyer') more than the other way round.

China needs free access to energy, food and other natural resources as well as to overseas customers for its exports but has very few nice or rich friends.

'Nice' might not be the most obvious description of the US but it is both rich and befriended and is working hard to exclude China from the Trans Pacific Partnership for trade while 'pivoting' its diplomatic and military resources to China's front door.

What Obama would like from China is less industrial espionage, more access to its domestic market and help in nuclear non-proliferation (notably vis à vis North Korea and Iran).

Deal or no deal?

The first reports are quite encouraging: after all, the business of China as well as America is business!

Xi is, however, taking a tougher line with 'Old Europe' on trade.

The EU's announcement of anti-dumping tariffs on solar panels has provoked immediate retaliation aimed at the heart of those supporting the measure: specifically, wine imports from France and Italy.

Both Germany and the UK were amongst those urging more negotiations before the EU acted.

This week brings the public hearings by Germany's Constitutional Court (the resonantly-named Bundesverfassungsgericht) of the challenge to the European Central Bank's (ECB) Outright Monetary Transactions (OMT) programme that ECB President Mario Draghi, with considerable justification, was congratulating himself over only last Thursday.

This time the mighty Bundesbank is supporting the challenge and a favourable ruling is very possible.

The Court has previously blocked anything that looked like a step toward full fiscal union and common Eurobonds.

The approach seems to be 'thus far and no further', which would not oblige Germany to leave the European Monetary Union (EMU) but it would undermine Draghi's masterwork.

This helps to explain why France's President Francois Hollande had to accept two weeks ago that there cannot be a new common bank restructuring fund or a shared bank deposit insurance scheme.

An immediate Court decision is not expected but the euro and peripheral bonds may start to show signs of stress as the implications become more widely appreciated.

Japan's Prime Minister Shinzo Abe's speech revealing his 'third arrow' aimed at the country's economic renaissance has been deemed rather light on detail but in any case was swamped by the punters rushing in and out of the Nikkei and yen.

Deregulation and incentives for big business is not really radical: maybe he is secretly planning to encourage immigration to help with the worsening demographic crisis?

Turkey's Prime Minister Erdogan may not appreciate being associated with anything Greek but he might well like to ponder what comes after hubris, which he seems to be exhibiting in ever larger quantities.

Investors on the Istanbul Stock Exchange have taken fright at the scale of the current protests, the composition of the protestors and Erdogan's Putin-like disdain.

He is unlikely to be unseated but rivals within his AK Party are now more likely to block his bid for the Presidency after he has served the maximum permitted two terms in parliament.

The first round of the Presidential election in Iran takes place this week. Anyone who looks like opposing the kleptocratic Khamenei clique has been banned but there are at least two dark horses.

Having amassed an estimated hoard of over $30bn the Supreme Leader can stay in control for as long as he keeps his 'marbles' (he is still only 74 but there are rumours of leukaemia) but the stakes are getting higher for the eventual succession: he has six allegedly avaricious children and a host of jealous and downtrodden enemies.

It would be good to know what members of the formerly secretive Bilderberg Group made of things at their meeting in leafy Hertfordshire. There is a distinct preponderance of 'Anglo-Saxon' attendees with Messrs Cameron, Osborne and Balls dropping in to join the inevitable Henry Kissinger, Christine Lagarde, Mario Monti and Peter Mandelson.

Other attendees include ministers from every Northern European government (except the three Baltic States) but only from Spain, Portugal and Turkey amongst the Southerners and former, albeit very distinguished politicians from the US. Business people, especially bankers, from both sides of the Atlantic compose the largest group.

Economic and foreign affairs are likely to dominate but medicine and technology is also on the published agenda.

Alas, the actual proceedings are not publicised.


There are two very important 'hard' numbers due from the US: Industrial Production (which has been quite disappointing of late) and Retail Sales (which have been going well). Both should have been solid enough in April but it is Unemployment that should be watched by those determined to second guess the FOMC and the latest Payrolls figures on Friday were inconclusive.

Dare we hope for yet more green shoots in the UK: this time on Industrial Production and Manufacturing?

Well, yes, probably.

Unemployment should also offer encouragement as the poor numbers from January now drop out. Average earnings, in contrast, are likely to disappoint again.

A batch of data from Australia should render even less comprehensible the RBA's decision last week not to cut rates. The economy is really hurting because of the slow-down in China and other developing Asian countries.

Alastair Winter is the Chief Economist at Daniel Stewart & Co.