“You can’t learn in school what the world is going to do next year” – Henry Ford.
2011 has been an extremely volatile year in financial markets, driven largely by the rapidly deteriorating events of the Eurozone sovereign debt crisis and the resultant bank sector liquidity squeeze. Global growth almost ground to a halt in the developed nations while the BRIC’s (Brazil, Russia, India and China), despite intermittent concerns about hard landings, kept the global growth rate at a respectable 3.5 percent. Signs of renewed consumer demand in the US into Q4 however, along with an improved employment backdrop suggest that so far at least the issues and uncertainties surrounding the Eurozone have not choked off global demand, yet.
As we move into 2012, a large number of the concerns of markets remain. Italian 10-year bond yields remain perilously close to the 7 percent level, which on a sustained basis is viewed as the barometer of sustainability of Italy’s ability to finance its debts (particularly in light of its faltering growth trajectory), despite a fiscal compact from the EU17, continued buying of Italian debt from the European Central Bank and a draconian budget from the incumbent technocratic Prime (and Finance) Minister.
Greece received the 6th tranche of aid under the EU / IMF bailout package and in the final days of the year the EU17 committed to a EUR150 billion loan to the International Monetary Fund, over EUR38 billion of which was pledged by Italy and Spain, the likely recipients of the ‘targeted’ funds of the IMF European efforts! Ultimately, however, the uncertainty and lack of a panacea to the ills of the indebted monetary union, will mean that the EUR and the Eurozone will remain at the forefront of the market psyche going into 2012 where the first quarter brings very substantial borrowing requirements (of most concern) from Italy, Spain and France.
Despite the prospect of further quantitative easing in the UK, there are a number of reasons to be cheerful about the relative prospects for the UK in 2012. The governments ‘plan A’ appears to be bringing the deficit down in line with projections and the threat of backlash from the UK veto of the EU treaty change is likely to fizzle out moving forward. I for one am very positive about the prospects for GBP in 2012.
Over the first weeks of 2012 I will outline my thoughts and expectations for 2012. For now however, in summary and on a light hearted note it could be said that 2011 has been a year of….
12 Months of financial market turmoil
11 % Brazilian interest rates
10 % eurozone unemployment
9 MPC members voting (for further QE)
8 % Chinese economic growth
7 % Italian 10 year yields
6 Greece EU/IMF disbursements
5 PIIGS a squealing
4 Fallen eurozone governments
3 year unlimited LTRO’s
2 Technocratic unelected Prime Ministers…
1 Veto at the EU27
No Panacea
… AND A EUROZONE UP A GUM TREE!
Neil Staines
SAXO BANK