Recent sharp fall in prices of commodities such as gold and crude has been triggered by investors worries over performance of global economy, believes Sarah Hewin of Standard Chartered.
“There has been a lot of disappointment over some of the largest regions in the global economy. I think the one factor behind the softness in the commodity market, is the view that global economy is perhaps not doing as well as people had anticipated earlier this year and the International Monetary Fund (IMF) of course downgraded their forecast,” Hewin said.
Recent data from economies like US and China have also disappointed, while European crisis continues to loom. In Europe, Hewin believes that Germany is the only economy in Europe region which people are looking for a support. However, profits from this region are also now going through subdued patch.
Below is the verbatim transcript of the interview
Q: What’s the call on German markets now? It has seen fair bit of correction. What’s happening over there and what would you make of the positive opening that we have seen today?
A: We have to look at the sort of broad context of what’s been happening in Europe and what was not agreed over the weekend. The European backdrop remains relatively subdued. Tomorrow we will have some Purchasing Managers’ Indices (PMI) which is likely to show sentiment staying relatively weak in April, beginning of the second quarter.
The Political backdrop for the region is also somewhat worrisome. The Italian presidency has been decided now and the coming days will probably see an interim government put in place but there remains a lot of volatility there. In an environment where the periphery is weak, then I think people look to Germany for some sort of support. The profits for Germany probably are still the best in the region, even though they have been also going through a relatively subdued patch recently.
Q: Would this be largely, as our previous speaker was pointing out, because of the depreciation in the yen which makes for more competition for German products. After all, Germany and Japan are in the same market. More importantly, what are you looking at in terms of numbers? Aren’t some PMI numbers due today?
A: It’s a relatively quiet day data-wise for the euro area today. We will the regions’ consumer confidence later on this afternoon our time which is expected to show consumers remaining relatively downbeat. This is an important weak for both the PMI releases which will come out tomorrow and then later in the weak we have the all important German IFO index.
As I said, that has been turning up, we have seen the sentiment indices, the PMI starting to recover in the early month of the year but then there is this set back at the last reading. So, the question is, was the setback just temporary or is it heavily influenced by Cyprus and their concerns there or does it signify that the tentative recovery as stalled.
Q: Since you look at the economics of the European markets but you would have a lively interest in other economies as well - are you getting a sense that the global commodity crash that we saw will continue? Is that presaging a bigger slowdown than we are prepared for?
A: There has been a lot of disappointment over some of the largest regions in the global economy. As I said at the beginning of the year we had perhaps the positive sentiment on Europe even though the data were weak there were feelings that the debt crisis perhaps had been carefully managed by the ECB. We were seeing stronger US data, we were helping for stronger Chinese data. China and the US have disappointed recently.
So I think that that’s one factor behind the softness in the commodity market, the view that global economy is perhaps not doing as well as people had anticipated earlier this year and the International Monetary Fund (IMF) of course downgraded their forecast. The tone of the meeting at the G20 and IMF was a somewhat subdued view that global growth was offering at more concerns than have been expected a few months ago.