Weekly Economic Briefing

Broken Eastern Promises

01 September 2015

Global Overview

  • Markets flew into a panic last week as investors questioned the health of the global economy. While we suspect this episode will be short-lived, we will monitor economic and financial conditions for signs of something more malign.
  • The shock emanated from China, although broad based weakness in emerging market economies also contributed. While Chinese policymakers have room to cushion the downturn, the outlook for emerging markets remains challenging.
  • Developed market growth looks more robust. While the Fed is likely to tread cautiously, a tightening labour market should set the scene for an interest rate hike once stress has subsided. A strong domestic economy and limited emerging market exposure should allow the UK to follow suit shortly after.
  • The Eurozone economy has closer ties to emerging markets, although a windfall from lower commodity prices should at least partly offset this drag. The ECB is likely to sound dovish, but leave policy unchanged at its meeting this week.
  • Japan has had a disappointing first half of the year, and while an improvement is anticipated in Q3, talk is beginning to turn to additional policy support. For Korea, close trade links with China provide a headache for a faltering economy.
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US

Recent comments from Fed members sparked considerable media interest in the wake of recent market volatility. We interpret both as suggesting that if things calm, September remains live.

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UK

UK equities have been caught up in global market turbulence. However, if conditions in financial markets continue to stabilise we don’t think that recent volatility will derail the UK’s growth story.

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Europe

The Eurozone is sensitive to the global trade cycle, although this should be partly mitigated by a boost from lower oil prices. We do not expect any policy changes from the ECB this week.

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Japan & Developed Asia

In Japan, we await the pay-off from lower commodity prices. However, sentiment indices do not inspire much hope. Meanwhile, Korea is under pressure due to strong trade ties to an uncertain China.

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Emerging Markets

Chinese growth is probably slowing by more than official statistics suggest. Market turmoil will only temporarily impact the global economy but is symptomatic of growing divergences in EM and DM.

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Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

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