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بحسب طبيعة عملي وصلني هذا عن طريق الأيميل …..للمشاركة والأطلاع
Dear Dr.Faraj,

Please find below an article about the current market situation by Giles Keating Head of CS Global Economics and strategy Group. I hope you find it interesting specifically in the current market conditions. I am looking forward to meeting you again soon.
Regards,
Jihan

Markets Worry About the State of the World Economy
21.01.2008 Stock markets fell sharply last week due to weak quarterly reports and a drop in consumer spending. Many investors are now asking if the worst is yet to come. Giles Keating, Head of the Credit Suisse Global Economics and Strategy Group (GESG) believes the global economy is fundamentally healthy, despite the current volatility.
In Focus: Giles, so far the markets this year have been tumbling causing investors to become fearful of what lies ahead. Is this a rational or an emotional response?
Giles Keating:There is always some mixture of rationality and emotional sentiment in these situations, however, I think in this circumstance there is a greater degree of underlying rationality based on some of the economic data that has been worsening recently. We are clearly going into a significant economic slowdown, which is spreading outwards from the US to some extent to Europe and Asia. That is reason to be concerned. But in my view, the markets have fallen enough and are actually beginning to create quite a lot of value in the equity markets. In that sense, investors have moved beyond rationality towards an area where sentiment, or at least worry about risk and uncertainty, is beginning to dominate.

So, is this a good time for investors to buy stocks, or should they be wary?
In terms of getting access to long-term value at a good price across the stock markets – certainly with developed stock markets – I would say yes. This is the right time to be bold and to make a move. Of course, in terms of very short-term movements, we have to be realistic. There can still be a bit more of this volatility, a bit more downside. But for investors who are looking beyond the next two or three months at the underlying value which we believe can emerge over a slightly longer period of time, I think that this is a time to be starting to commit funds and to be building up a position in equity markets.

Is the US economy sliding into recession?
The US economy is certainly slowing down. Is it actually going into outright recession? Well, there is some risk of that. But in my view, the more likely probability is that we will just see a sharp slowdown without the economy actually going into recession. And indeed, if it were to go into a technical recession, I think it would be of a very technical nature. In other words, we might end up with a couple of quarters where growth is in a slightly negative zone. However, I do not think it is very likely we are going to see the economy really slowing into a deep recession. My colleagues on the GESG feel that the corporate sector is looking pretty strong with strong balance sheets. Companies have actually been quite cautious during the expansion years, and that puts them into a very good position when there is a downswing such as the current one. So with regard to recession, there is a rather low probability that we might be getting into something quite deep.

With this sharp decline, will the US Federal Reserve respond with more interest rate cuts?
I think the Fed is now giving clear indications that it is going to be reasonably decisive in delivering more interest rate cuts. And, it is pretty clear that the banking system would benefit if the US were to lower interest rates significantly, and really quite rapidly. So, the markets are now discounting a 50 basis point cut before the end of the month with some possibility of a bigger reduction. And I think that is the right flavor, given signals that are coming out of the Fed, and given that that is what is needed to support the banking system at this point. Provided the Fed acts decisively, that will again help reduce the risk of recession.

What impact is the slowdown in the US having on the world economy?
There clearly is some degree of feed-through from the US slowdown to the rest of the world, which has become apparent in some of the data that we’re seeing. But we shouldn’t exaggerate the scale of this. There is a big debate going on between people who are saying there is decoupling and that the US is less important, and those who say there isn’t decoupling. What appears to be going on is something between those two extremes – I’d call it partial decoupling. Europe does look as though it is going into a slowdown over the next few months, but it probably won’t get quite as weak as perhaps the US. For example, China experienced a very rapid growth rate in the second half of last year and it looks as though that rapid growth with slow. Part of the reason for that is the US slowdown, but it is highly unlikely that China will experience a deep slowdown as it will still have good growth momentum on the back of strong consumption and investment.

The dollar is near an all-time low against the euro. What does this mean and how do you see it developing in the short-term?
The dollar clearly looks as though it can stay weak against the euro and against other currencies in the first part of this year. I think, as we move through the year, there is a reasonable chance that its bout of weakness against the euro will begin to come to an end, especially as the slowdown spreads to Europe and as the European Central Bank, which is very hawkish at the moment because of inflation worries – perhaps begins to moderate their policy a little bit. However, against the Asian currencies, we think it is pretty likely that the dollar will continue to be weak. In 2007, the big story was dollar weakness against the euro. In 2008, the big foreign exchange story will be the dollar’s weakness against the Asian currencies, because the Asian currencies benefit from the strong economies there, and because there is an inflation problem. One way that the Asian countries can deal with that is by letting their currencies move up a bit.

Let’s turn to the current earnings reporting season? Do you expect the sub-prime crisis to further impact results?
The earnings season has only just begun and has had a few results, but by no means the bulk of them. So far, results have been pretty mixed. We have seen one or two good surprises and one or two bad surprises. Our overall view is that we are will experience a degree of disappointment on company earnings. And that reflects that the slowdown is going on. Although some of that will be in the current round, perhaps a bit more of it will be in three months time when we get the first quarter earnings coming through. And these weaker earnings data are something which the equity markets obviously have to take on board, and probably sooner rather than later. I think that is one of the reasons why the markets have been negative. Investors are becoming a lot more cautious about earnings. We think it is very important to be aware of that. That will keep the markets weak in the very near term. At the same time, we think that it’s important to realize that this earnings weakness is a fairly short-lived phenomenon in our view. Because the world economy – in our view – is not going into recession, we think that the earnings will be able to recover later this year. And for that reason, we believe that equities actually offer rather good value and the weakness that’s associated with this current disappointment on earnings is likely to prove to be relatively short lived.

Meanwhile, demand for commodities continues to surge. Could the slowdown in the US stop commodity prices from rising?
I think it is very important to distinguish the commodities that are particularly sensitive to the economic cycle from those that are less sensitive. In the case of oil and other energy commodities and also base metals such as copper that are used in manufacturing and construction, those commodities are likely to weaken as a result of the slowdown in the US and in the world economy. This is something my colleagues and I have discussed and we feel this is likely. For that reason, we should be looking for oil prices to be falling into the 80-dollar range, and we should be looking for copper and the other base metals to come down as well. And by the way, that should be helpful to the world economy in terms of reducing inflation pressures a bit, but obviously investors in commodities have to watch that quite carefully.

However, if we look at some of the other commodity areas, the precious metals, gold, and platinum and so on, then this is quite a good environment for the people who are concerned about the weakness of the dollar. They tend to buy gold and the other precious metals as a substitute or safe haven. We are already seeing near record prices for gold and there is a good chance we could see even further gains.
The other areas to look at are the food stocks, the so-called soft commodities. There, we think again the uptrend can continue due to strong fundamental drivers such as the demand for bio-fuels and also just the increasing demand around the world for more expensive foods. There are also short term supply issues. We think investors should hold a basket of those soft commodities because the individual ones can get very volatile.

Would a further rise in soft commodities prices compound the economic worries of the US?
The higher soft commodities prices obviously feed through to the food price inflation and in some of the emerging countries that’s a very high weight in the basket of consumer prices that people have to pay. So, there is a real issue. In the US and the other developed countries it is an issue, but the weight in the index is much smaller. And if we are right in thinking that oil prices might be starting to come down, then, in fact, the decline could well be the more important factor. I think the right way to think of this is that over the next couple of months we could still be see some high inflation numbers in the US and other developed countries. After that, if we are right, we should see some easing of those high inflation rates as the oil price comes down. However, in the emerging countries, food prices will carry on being a problem.

And by the way, that’s another reason for expecting those Asian currencies to be strong as many countries in Asia really want to try and counter the effects of those high food prices by letting their currencies go up.

And what’s the situation with bonds?
Well, we’ve seen that the government bonds and the very, very high-quality bonds are performing extremely well as people are buying them as a safe haven. It’s a flight to quality effect, and, of course, because they are concerned about economic slowdown and because they expect the Fed to be cutting rates. At the same time, we’ve seen lower-quality bonds actually experiencing either not as good performance, or in many cases, outright bad performance, as the economic slowdown is making people worried about credit quality, and rising defaults. Now, we think that kind of very sharp divergence can continue a little while longer. After that, we think that the government bonds, the high-quality bonds, might not perform so well once – if our expectation proofs correct – the economic data improve. We are suggesting that investors deal with this is by holding shorter-dated, fairly high-quality bonds, but not necessarily the very highest quality government bonds, but certainly bonds where with a secure income stream.

In summary, what is your view of the overall health of the world economy?
I actually believe the world economy is still fundamentally pretty healthy. We do have very powerful structural drivers that push toward urbanization and globalization. For example, the sheer increase in the number of people – and particularly the number of people living in cities – and of course, all the new technologies, which in part are stimulated by the need to provide for all those people and provide for them in a way that minimizes the impact on global warming. These are all very powerful structural drivers. Alongside some other important, slightly less fundamental factors, such as the underlying health of most large corporate balance sheets, leads us to believe that we are really still in the midst of a long economic upswing, which began about five years ago and could probably easily carry on for another three to five years. Of course, there is a slowdown going on within that, but I believe that although it feels rather nasty at the moment, there is a very good chance it will turn out to be a rather healthy development, which slows the economy enough to take the edge of some of the inflation pressures and then really sets the next stage of that long expansion that I’ve talked about.