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Markets fall as politicians argue

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Oil markets
By Paul Hodges on 08-Aug-2011

D'turn 5Aug11.pngThe blog’s IeC Downturn Alert is now 3 months old. The aim was to provide enough time for readers to develop robust contingency plans, as a new global downturn became more and more likely.

A key issue is that dysfunctional political systems in the eurozone, USA and China seem unable to deliver sensible solutions to today’s problems:

• In the 1980s, leaders such as Reagan, Thatcher and Deng succesfully adapted their economies to the rise of the Western BabyBoomers (those born between 1946-70).
• Today their heirs, such as Obama, Merkel and Wen seem unable to recognise the importance of the ageing of the Boomers for future global demand

S&P’s downgrade of US debt from its AAA rating is just one example of how their inability to lead is destroying confidence around the world.

Reuters poses the issue very well in relation to financial markets. They comment that:

“If one thinks:
• “We really are going to enter a double-dip recession, then stocks are not remotely attractive at these levels
• “Wise and proactive economic policy in the US and Europe can help prevent such a thing, then likewise it’s a good idea to stay on the sidelines right now: there’s no chance of that happening any time soon.
• “Less government is better government and that the private sector, left to its own devices, will create jobs and economic growth, then maybe what you’re seeing right now is a buying opportunity.”

Most investors, like most chemical company executives, would like to believe that governments could implement “wise and proactive economic policy”. They are not at all used to the idea that the private sector might be on its own, left to ‘sink or swim’ by governments.

Equally, it is hard to see what the private sector can achieve on its own.

The Financial Times’ Gillian Tett, one of the few to forecast the 2008 downturn, suggests that the parallels with that terrible time are growing. But instead of Bear Stearns and Lehman, its Greece and Spain who are going bust.

Oil markets are also looking weak. A major fall in prices looks increasingly likely, and would certainly panic those Chinese traders and others, who have been busy buying in recent days, in anticipation of a strong September.

The detailed moves since the IeC Downturn Alert launched at end-April, with ICIS pricing commentary on market sentiment last week, are below:

Naphtha Europe (brown dash), down 17%. “Buyers are in no hurry to purchase material while sellers are under pressure ”
HDPE USA export (purple), down 15%. “Producers increased the price to traders and brokers, based on increasing global prices and improved demand “.
US S&P 500 Index (pink dot), down 12%
Brent crude oil (blue dash, right hand scale), down 9%.
PTA China (red), down 6%. “Prices rose on the back of PX prices after a fire hit Taiwan Formosa group’s refinery complex “.
Benzene NWE (green), down 2%. “Mounting macroeconomic concerns saw lower offers that were not met with any firm corresponding bids.”