It's post Christmas and perhaps time to consider market fundamentals .
As I see it the key economic issues are:
1. Ever tightening credit markets (I've been banking on about emerging market risk, debt bombs, EU bank risk, & China bank risk and non-performing loans becoming bad loans for over a year now.) It's currently a doomer's paradise.
2. Pork pies within Chinese data. On the surface most published statistics still look OK ….. but not all. OECD charts show a COLLAPSE in China's shadow banking statistics. To me this decline points to recession rather than a simple decline in growth. I don't have all of the metrics in my head however so called shadow banking arrangements are of equal if not greater importance than mainstream banks.
3. Asia market resilience. I see resilience within Asian markets (excluding China) this as a big positive but the metrics are hard to understand and process.
4. India. Historic data looks OK but this economy will remain highly sensitive to global credit conditions.
Geopolitical environment :
1. The further rise of Iran. Thanks to Trump's blundering betrayal of his loyal Kurdish allies in Iraq and Syria, Iran now has its pathway to the Mediterranean. Anew Persian sphere of influence is a reality that we must acknowledge and now peacefully deal with.
The market is yet to digest the implications if Iran's rise. The outcome will depend on whether the mad mullahs learn to behave or not.
2. The House of Saud. The US failed to keep the House of Saud on a very short leash. As a consequence the House of Saud has at least shot itself in the foot if not the head.
Will the Saudi regime totter? Will it be replaced by a Brotherhood government (the apparent Turkish agenda) ? If so will such a regime be extremist of not? There are many factions within the Muslim Brotherhood and so while the risk of an extremist takeover is not certain it remains a possibility. I don't have any real idea and neither does the market. Both Russia and Iran energy exports will benefit from turmoil within Saudi Arabia but neither Putin or the mad mullahs are fans of the Muslim Brotherhood.
A great unknown ATM is the actual state of Saudi oil reserves. Then there is the Yemen war and holocaust (Saudi Arabi and Iran are equally guilty on this front).
3. China. Is China actually rising further? Sabre rattling in the South China Sea aside it is my gut feel that China is (at best) consolidating its position rather than "rising".
4. Populist far right politics. Erdogan has had the EU by the short and curlies on this front. Will it stay this way? Maybe or maybe not. Should Trump he held accountable for the many disasters that surround him global populist support could actually fall. We can but wait and see.
cheers
