Major Global Economic Concerns for 2nd Half of 2010

Major Global Economic Concerns for 2nd Half of 2010
It is now clear that the global economic recovery is hitting a major wall of resistance. Just a few short months ago throughout the 1st quarter of 2010, the Federal Reserve was beginning to hold talks behind closed doors of how and when they might begin to tighten monetary policy. The economic recovery was doing quite well, and it seemed that the economy was beginning to show signs that a self-sustaining recovery could be under way within a few months. Then, in April the EuroZone Debt Crisis hysteria peaked out. Strong hesitancy at the European Central Bank to bail out Greece, Portugal, Spain, Ireland, and Italy started to freak out market participants. Equity markets took a big hit and the U.S. Dollar gained incredible value as risk aversion capital flows took over the global financial system.

Finally at the end of May, the ECB pledged bailout funds for struggling EuroZone countries and the market responded accordingly. Equity markets began to rally faintly and risk appetite returned to financial markets in general. However, in early June key economic data began to fall far short of market expectations as Retail Sales, Consumer Sentiment, Housing Data, and Employment Figures all coalesced to prove the economic recovery in the United States was slowing dramatically. Then, in late July Federal Reserve Chairman Ben Bernanke confirmed everyone’s fears when he testified before Congress and stated that the economic outlook in the U.S. is “unusually uncertain.”
We are now 2 years past the initial Sub-Prime Mortgage blow-up that sparked The Great Recession—and we are still at a stage where the recovery is “unusually uncertain.” Market experts all agree that this is no normal recession. The possibility of a double-dip recession is very real and the threat of deflation seems to be materializing more and more each month. It’s not looking good in the United States. There are basically two options that will most likely play out in the United States during the 2nd half of 2010.
1. The United States will continue to move forward very slowly. Economic growth will continue but very sluggishly with consumer sentiment remaining low, unemployment high, and inflation contained. Deflation would remain a threat.
2. Global economic developments cause systemic risk to cause a huge bout of risk aversion to flood capital markets across the world and the global system enters another round of recession as economic growth contracts.
Currently, it seems that option 1 is more probabilistic, but option 2 is definitely possible. Let’s quickly examine a few developments that could cause the market to slip back into recession.
China
The Chinese economy has continued to grow at a red-hot pace throughout the global recession of the last two years. In fact, the continued growth in China has been one of the leading reasons that the global recession was not worse. China’s growth carries a strong demand for raw materials from the United States, Australia, and the EuroZone, and that continued demand was able to make up for the significant drop in domestic demand that developed nations experienced in the last 2 years.
The red-hot growth in China got a bit too red-hot, however, in the last few months, and the Chinese government began reigning in monetary stimulus by tightening credit markets and removing stimulus from the overheated property market. The effects of this stimulus removal are now being felt in the Chinese economy as key economic data has confirmed a slow-down in the month of August. However, since this slow-down was expected, it is not causing too much alarm amongst forex brokers in the market, but if the slow-down develops into a serious slow-down, it could serve to send global markets plummeting.
EuroZone
The EuroZone Debt Crisis appears to be under control at the moment, but many economists are concerned that austerity measures being forced on countries throughout the EuroZone will eventually weigh on economic growth in the EuroZone in the 2nd half of 2010. If this happens, it could serve to tip the scale toward hysteria once again.

Cesar Zambrano
Futures trading involves risk. People can and do lose money

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