The wall of worry just got a whole lot bigger

The tragic events on Friday night in Paris realised the simmering fears many had about the increased terrorist threats and will only add to the wall of worry over the global economy. Nils Andersen, Chief executive of the world’s largest shipping line Maersk, in a phone conversation this week stated that he believed that from what his company is seeing trade is below where it would be based on current growth estimates. Two quarters of negative earnings and revenue growth have also added to the fears of an impending global economic recession. 

The Federal Reserve far from being in a position now to raise rates may be forced into further stimulus action should these economic fears be realised. If the Fed had acted sooner, perhaps earlier this year in pushing rates higher, they may now be discussing at the forthcoming meeting lowering them back down again.

Equity markets had a bad week last week, the S&P having its worst week since late August falling over 3.5%, the Ftse 100 fell by a similar amount. The commodity markets once again fell, oil by 8%. The S&P 500 fell through its 100 and 200-day average. The Vix, or the fear gauge as many market participants describe it, closed back over 20, the level considered to demonstrate financial stress re-entering the markets. Euro area Q3 GDP estimates came in at 0.3% on Friday again below expectations. 

Markets will open on Monday dominated more by the impact of the weekend than any macro data, however the release of the latest US inflation data on Tuesday and the minutes of the last Federal Open Market Committee meeting on Wednesday will get some focus. The developments of the past few days may well make those minutes redundant. 

As for the UK and the euro area we also get the latest inflation data on Tuesday. Economists are expecting inflation to fall by 0.1% month on month and year on year for the UK economy. On Wednesday we get the retail sales data for October, unlike the US there has been some signs of a pick-up in retail sales in the past months in the UK economy. 

Also on Tuesday the release of the latest ZEW sentiment survey. This, as a reminder, is a measure of analysts’ level of optimism about the current state of the German economy and for the six months ahead. The index reached a high in April this year and has been drifting lower since that point, expectations are for another fall. Mario Draghi is due once again to speak this week; he is most likely to once again reiterate his belief further stimulus will be needed in the coming months. Janet Yellen may soon be coming to the same conclusion.