Well, time for another update I think.
In the US at least, the last month has been characterised by
great eclipse fever; initially the expectation, then the event and finally the
implications: eclipses do affect weather and earth movements and in my view not
just where they are visible. And now of
course we are in the middle of a bit of an international stand-off due to North
Korea’s military showcasing.
But that is the reality, what we want to know is how close
we came to anticipating it.
UK
Despite a lot of hot air the UK has had a quiet few months
July-Sept but comments on the leadership and the potential for an uptick in
Sterling in September were correct as was the expectation that the FTSE all
share would be more mixed though we appear to have escaped any glitches so far.
Europe
We’ll deal with Europe next as the US will round up our summary this time.
I pretty much nailed the lack of direction in the Euro
around August. I am also pleased with my assessment of France – after all
everyone was extremely optimistic about Macron’s win, yet I could foresee
policy vision difficulties and so it has proved. There is little to be said about Germany as
the big event, the election is still to come. Although I didn’t predict the Barcelona
event I did predict some challenges despite overall stability for Spain, it
remains one of the best Eurozone economies in 2017, consistent with my
expansionary prediction.
In Italy I expected things to become more nuanced and with the
leading populist parties shifting their tone this seems also to be correct. I
expected little news in Greece and so it has proved, the economy has been
growing but the debt overhang remains huge and shifts in policy by the leading
party have caused objections though perhaps not as forceful as I expected. We’ll
see what happens between now and the year end…..
In Ireland things continue to go well as expected and it
even seems as if the one are of UK Brexit talks that might be making some
progress is on the Irish border.
Switzerland is its usual yawn inducing self ( of course that’s
not a bad thing for the country merely
for a forecaster looking for some drama!)
although it’s second quarter growth was weaker than expected which I didn’t
foresee- though the effect is subtle. And Iceland appears to be happier than I
expected although there is some dissatisfaction with tourists and prices.
Other
As expected, in Canada things have been going very well, it
will be interesting to see if that continues in the next two months. Australia
grew strongly too after a worrying few months earlier though August was
characterised by the dual citizenship drama- I didn’t manage to get that one
but who would , though I did expect international issues to cause problems as
they did. And no doubt they are pulled into the NK drama too. In South Africa as
expected things continue to be difficult for the governing party and
particularly Mr Zuma. All three countries should in their own ways find the
next few months more “interesting.
South America
Moving to South America of course all the focus is on Venezuela
( and of course the Bolivar) which has lived up to my worst expectations and
even the threat of oil related sanctions from US coincided with my forecast for
oil price issues. Things are expected to get more dramatic in the coming months
for Maduro.
The period wasn’t expected to be particularly important in Brazil
and though to sell off assets to boost its financial strength, it continues much
as before. It remains to be seen whether there will be the expected shift away
from leadership issues in Sept and October. The Real improved in August as
expected.
In Argentina I foresaw a quite phase and it certainly seems
to have been so and the Peso did in fact reach a turning point and show some
improvement in the period although this isn’t really expected to continue in the
next two months.
A quite quarter for Mexico too with some positive news on
the economy but with too many unknowns to be too optimistic. This tallies with
the uncertainty I expected. Let’s see of international matters become more important
– the NAFTA talks are on and Mexico are still determined not to pay for the wall
so it looks likely they will. I got the Peso wrong earlier in the year but it is
back on track now- treading water, though perhaps with less volatility than I
might have expected.
Asia - Central/West
Let’s go to India next where Modi has recently shaken up his
team. As expected things are mixed, with the de-monetisation not as successful
at fighting corruption as hoped and with variable issues elsewhere, things are
much as we expected. I expected more issues re currency than have proved to be the
case and indeed there was an interest rate decrease. There was suspension of
Masala bonds due to demand rather than other issues. Perhaps a mixed result though not entirely
wrong and we need to see the period to end of October before being sure. The Sensex
has had a much more mixed few months than the earlier part of the year. There
definitely seemed to have been the expected change in sentiment but perhaps the
volatility was not as great as anticipated. Again we need to wait and see on this
one.
I though the focus might be on wider international issues this
period and so it has been, with the US position and China in the spotlight. This
could have implications in the coming months.
Really we should probably leave Russia till nearer the end
but it fits so much better here. I
assumed that issues related to international matters would focus on the ME but
of course they are really more directed to NK. I was right to surmise that the
Russian response would be moderated. While I am pleased with my Rouble forecast
for July-August at the end of the month
there was an unexpected improvement. So far it seems there is little movement in
September however it is only the 5th!
Turkey was indeed
much quieter over the period and indeed the economy looked better. The Lira improved
too though more so in August than the expected July rise. Unfortunately I don’t see this continuing.
In Iran I expected relative calm after the election but
attempts to shore up its military protections by this time. I can be very
pleased with this one as the country has just tested its first ever long-range
missile defence system amid tensions with the US over its weapons programme.
The NK situation can’t help!!
As forecast Israel has continued to put pressure on the
Palestinians in the period. The government did receive condemnation not for
that but for failing to denounce the Charlottesville attacker. And it is in
military mode with a simulated anti-Hezbollah exercise. All of which aligns
nicely with the forecast though is not as bad as I feared. Yet, anyway.
Saudi Arabia is another matter. After the dramatic succession
shifts of earlier in the year it continues to seem less stable than in a century.
It appears to be immersed in Yemen where it is now being accused of killing
children. Added to that it is continuing a mixed route of evolution; some freedoms
being offset by other crackdowns – the airline dress code being one of them.
All much as anticipated and I still maintain this will not all end well.
Asia East
Moving on then, let’s talk about Indonesia. After a blip in
July the manufacturing sector grew again in August and the forecast expected economic
growth at this time. But there are indeed tricky issues particularly in
relation to extreme Islamic sentiments some stoked by our friends above in
Saudi Arabia. However nothing too dramatic is expected in the next 2 months.
I anticipated changes in the interest rate environment for this
period due to rises in value of the currency
and in fact there was a rate cut on August 22nd. Another one nailed
then.
The Hong Kong dollar both showed weakness and shifts in
August confirming the expectation of some speculative actions. The Hang Seng
showed a switch from growth to volatility within a range in August more or less
in line with the prediction ( albeit after stronger than expected growth in the
first half).
So here we are, just Japan, China, North and South Korea and
the US to go. Let’s start with Japan who after all have literally seen the most
activity from NK in the last month.
Japan
I didn’t identify anything in Japan’s forecast for the period
to suggest a threat ( and obviously they aren’t the prime target) . Indeed
Japan has fulfilled its prediction of good developments in 2017. The Yen
forecast ( mostly for no direction and some volatility) was pretty much right
too. I expected the Nikkei to be flat at best but for there to be a changes
internally and it reacted badly to the NK tests and internal political matters.
I.e the financial performance took second place. A moderately ok result.
China
Here is the forecast in full for China “In fact there may
even be some cause for optimism at this time. There is however some risk of a
war of words, either internally or externally. July to September is not
radically different. Although there is some uncertainty for the people (and
perhaps some floods). Optimism remains, as does support for the leadership,
although there are some moderate problems with economic statistics showing some
recession and the need for some restriction on dissent.”
We got the floods in July, certainly the war of words flying
around the region ( not t mention a few NK missiles as well). But growth
continue to be strong too. I thought the Renminbi showed some potential
for buying ( and thus increase) in August September and indeed it has just
reached a 14 month long high. I expect it to get even more interesting soon.
However I underestimated the Shanghai Composite which has continued to rise regardless
of events and other markets. However this must be taken in the context of the
act that we are not yet back to 2015 highs leave alone 2007 ones.
It gets more interesting as we move to:
South Korea.
I Said “Although there is less support for the leadership
now. The people may be quite agitated, although any sort of major disruptive
protest is highly unlikely….. September and October see the international and
financial issues reach a head.”
This is what the news says
The country is in
the eye of the storm amid escalating geopolitical tensions in the Korean
Peninsula. Preliminary data show that a contraction in exports caused GDP
growth to decelerate in the second quarter. The decline in exports largely
reflects China's ban on group tours following the deployment of a controversial
anti-missile system in the country earlier this year. Despite the slowdown, the
government is fairly optimistic about the country’s growth outlook …….the
revision reflects the view that the approval of an almost USD 10 billion
supplementary budget will give the economy the extra boost although it is
uncertain how the government could actually implement concrete measures without
a parliamentary majority. The upward revision came despite an escalating war of
words between the United States and its rival in the North which could dampen
fixed investment and private consumption in the short-term.
“June to August however sees some return to these [military matters].
There are compromises to be made regarding the people and military matters. It is still a time when
economic issues are improved despite long term indicators of challenges. September
and October are interesting as they see the people and leadership opposed.
There is once again a focus on military issues but it is less well managed now
and there may be short term escalation in related matters. Some days may be
tricky though there is little evidence of any long term conflict.”
Obviously we are all aware of what is happening and the fact
that sanctions further damage the people while military matters dominate. I
hope I am right that no long term conflict
starts now.
And finally to the US where I said
“July and August is not markedly different with the
difference of opinion over the leadership still festering. There is still a
cloud over the real person- to some that is a sparkly rose coloured mist, to
others it is grey and dank fog. As a result, there may still be some unrest to
be dealt with; even normally passive/co-operative people and partners may be
prone to aggression at this time. This
may manifest at both a country and international level. “
I think that deserves a gold star for getting both internal aggression
and external stuff timed so well ( though not a platinum star as I missed
Harvey altogether! – although too be fair that was Neptune as I attributed
mists to it rather than water.) I hope ( for many reasons) that I get the rest
of the year right as I did not predict all out global thermonuclear war!
When it comes to the dollar I said
“It is around August when we will really see radical
effects. The currency faces a dramatic challenge to the expansionary policies
of the last decades. There are echoes of the 1930s and of the 1970s. There does
not seem to be much opposition from the people at this stage and there is still
some structure in place to stop values becoming too volatile. September
and October see more of the same. “
In fact August wasn’t a dramatic month at all. Indeed 2017’s
relentless rise of the Euro etc stalled. However this hides the impact of the
discussion over the budget ceiling and debt as a whole ( the wall, defence,
flood bailing etc). It also says nothing about the rise of bitcoin etc which is
a whole different article.
When it comes to the
Dow I predicted
“This picture continues into June, July and August. There is
a lack of direction and minor fluctuations. I’d guess we’re in for one last
boost to valuations before a new cycle begins. September looks like a holding
pattern. “ This pretty much sums up the position. With a final push up into
August and then fluctuations below that peak.
But the NASDAQ forecast was
“In July to September, it is investors who are busy
rebalancing their portfolios. It is a pretty mixed period and we’d have to look
at a day to day analysis to see the actual movements. It is a quieter period than the previous few
months. I don’t expect this quarter to end much different to how it began.
Interestingly although the overall picture is similar to the
Dow there is a noticeable difference in that the latter peaked in late July early
August whereas the Nasdaq had a higher peak in the last week. Still on balance it
looks to be fulfilling the prediction nicely.
So that’s it then. Pretty much everything on track for 2017.
And perhaps for 2018-20 too???
”
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