Today we look forward to what is happening this fall. There are a lot of obvious events, with the U.S. election being at the top of the list, but we have found that issues that are just below the surface often wind up being just as influential as the ones that grab the headlines.
Three issues may fit into that category this fall.
- The first is the continuing work on triggering Article 50 of the Lisbon Treaty, which will officially start the process of the U.K. leaving the EU. No one said this would be easy but it is turning out to be really hard. The U.K. economy today is not what it was at the time of the Brexit vote. The initial economic fallout was not as bad as feared, but the restructuring will take a long time and as news leaks out regarding that process, markets will take note and adjust long-term expectations accordingly.
- The second is what is quietly going on with OPEC. Oil prices have been on the low side for so long that the cartel has broken down in many ways, with member countries breaking ranks and putting more oil on the markets in a frantic search for cash. With oil currently regaining its footing to some degree, OPEC is now trying to rein in its members and return to better discipline regarding output. If that effort gains traction, oil could finally see a sustained increase.
- Finally we turn to Japan. That country is still far from creating any inflationary pressure despite pursuing unconventional monetary measures. In December, the Bank of Japan’s asset purchasing program intended to flatten the yield curve, extending the maturities of the bonds that it was buying. However, with the introduction of negative interest rates in January, even the long-tern yields dipped into negative territories, resulting in declining profits at commercial banks and struggling returns on pension funds. As the Japanese economy tries to recover, the focus will continue to be on future BOJ moves, as they are currently conducting a comprehensive review of their past policies.
Our View: As we approach the fourth quarter there are many uncertainties in the global economy, including whether the U.S. will raise interest rates this year and whether nations will step up their fiscal stimulus – and what impact it would have on monetary policies if they do. No matter what happens, we’ll be here each week to walk you through it.
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