It has been several months since the unrest in Ukraine started. The mercury is rising day by day. Nobody knows when the crisis will be over. World’s analysts and scientists are looking for the real reasons why the chaos ensued. The situation is considered from many different angles inevitably resulting in polar opinions .
Jim Willie, the American newsletter writer and statistical analyst in marketing research, is of the opinion that the situation developing in Ukraine is nothing more than a struggle between the West and the East for the financial supremacy. “I believe what we got with Ukraine is an absolutely desperate situation where the U.S. government realizes we have to stop Ukraine from becoming a central transit point for energy pipelines in the fast developing Eurasian Trade Zone. They need to stop the Eurasian Trade Zone because the United States and England are largely going to be excluded,” he wrote. Dr Willie, who has a PhD in statistics, thinks that “the manufactured crisis in Ukraine is an act of desperation by the United States.”
According to Dr Willie, if you look behind the curtain, you might realize that this is the third attack on the Russian Gazprom. “The first attack was veiled and it was Cyprus,” he continued. The second one was Syria. And now Ukraine, which became soft of bargaining chip. The Unites States and Europe believe that in case the gas pipeline valves are under their control, they will have control over the flows going to Romania, Poland, and Hungary.
Russia was entangled in the conflict, which influenced its economy a lot. That influence is reckoned to be negative. The Ukrainian stand-off affected the Russian investment programs badly. In early March, the Russian market shrunk 12%, while the risky sovereign bonds yield inched up 11%. Russia’s industry will suffer greatly from Ukraine’s unrest. In the experts’ opinion, 1 out of 2 businesses will face the output decline in the nearest future. Ukraine’s government procurement will contract and take its toll on the local consumers.
The recent referendum in Crimea caused quite a stir. The U.S. authorities and representatives of the leading European countries have been discussing the imposition of sanctions against Russia, including the economic ones. These sanctions can backfire and have a negative impact on the countries which enacted them. For example, London might lose its Russian investors. For the last two years, the total volume of deals Russian companies stroke has been $180 billion and yielded handsome profit to London’s bankers, jurists etc. And thanks to the U.S. and EU efforts, the bottom could drop out of that fruitful collaboration soon.
The damage is inevitable since there are strong links established between the Russian Federation and the world’s financial system. Lots of Russian corporations are governmental or belong to the billionaires, who are bound up with President Putin. Thus, even targeted sanctions could harm the international business. Analysts stress that Russia-West trade turnover, including industrial and financial sector, is huge. The stricter sanctions will be, the greater damage will be incurred.
Latvia’s market is the one to be in dire straits in case the sanctions against Russia are imposed. “Three industries feel pronounced impact. The first ones are the agricultural and food industries. Russia is our second partner in terms of exports size. 43% of Latvia’s exports to Russia are food and agricultural products. Energy is the second field. For example, in the supply of natural gas, we are completely dependent on Russia. The third sector is the transport sector as 70% of all transportations related to Russia, ” Latvia’s Economy Minister Vyacheslav Dombrowki said. The Federation of German Wholesalem Foreign Trade, and Services, the BGA, also expressed concerns about the loss the country’s economy could sustain as 6,200 German enterprises are engaged in trade with the Russian Federation. The overall volume of trades constituted €76 billion.
Paolo Scaroni, the head of Eni, the Italian energy company, is of the opinion that in case political tensions between the West and Russia heighten, the latter could reduce the amount of gas piped through Ukraine. So, Europe might face not only disruptions in the Russian gas supply, but also the gas prices hike. Italy, Austria, and Germany will suffer the supply disruptions first.
The gas production in Europe is falling steadily, so in case the European Union wants to reduce its dependence on the Russian fuel, the alliance should develop its shale resources and increase the use of nuclear and coal energy in the region, Mr Scaroni continued. The EU can also buy more LNG from the United States, but that, in the Eni president’s opinion, is rather expensive solution.
The U.S. is one of the few nations that pose the smallest risk to their economies imposing sanctions against Russia. The total turnover is about $27 billion. So, Washington acts accordingly as the negative impact on the American economy is minimum. Nevertheless, the chiefs of such U.S. companies as General Electric Co, Boeing Co. are apprehensive of such strict measures since they could evoke the appropriate response from the Russian authorities. 54 aircrafts of GE Capital Aviation Services, one of the General Electric Co. subsidiaries, are in Russia.
Boeing, in its turn, is afraid to lose the demand for its airliners. That is possible given that the global economic growth could slacken amid the tense geopolitical situation in the world. A study undertook by Ernst & Young revealed that the U.S. companies dealing with technology and financial field were accounted for the lion’s share of foreign investments to Russia last year. Their presence on the Russian market increased dramatically after the country entered the WTO in 2012.
As for the banking system, punitive sanctions can affect large financial institutions, which provide Russian energy and metallurgical companies with a line of credit. “Let’s suppose such a bank will decide to freeze this line of credit. Then, the companies that had previously invested the borrowed money in their business development and exports will get to looking for another bank. No doubt, the Western financial institutions are succeeded the most in that. But in this situation the Russian companies might turn to the Japanese, Chinese, and other banks,” Arnaud Leclerk, Limited Partner at Lombard Odier, said in the interview to news channel Russia-24. The banker stressed that might heighten the diversification of the Russian economy in a sense that the country will be able to turn away from the Western influence and strengthen cooperation with the East.
There is a growing concern about People’s Republic of China’s economic condition. Nevertheless, the GDP is expected to post 7.5% in 2014, while the inflation is projected to be 3.5%. That was announced by China’s Prime Minister Li Keqiang at the annual National People’s Congress in March. The pace of the U.S. and EU markets’ recovery will show whether the Chinese economy will be able to post stronger growth. On the other hand, sharp economic growth might pose risk of financial bubbles and economic efficiency slump. Besides, that might lead to the environmental crisis. The threat to the environment is the major reason why the Chinese authorities speak out for the moderate economic growth.
The Liqomonics, the newly coined economic framework proposed by the premier, is aimed to provide the “moderate” GDP growth so that to save the Chinese economy from overheating.
According to the experts’ estimates, on the whole, the world economy is set to develop steadily. The updated report of the International Monetary Fund reads that the global economy growth is expected to come in at 3.9%. The IMF upgraded its forecast for the first time in two years. However, Russian economic outlook was cut to 2%, while it was 3% in October. Russia’s GDP is projected to inch up 2.5%, RIA Novosti says.
The IMF’s economic forecast for the U.S. GDP was raised to 2.8%. Meanwhile, the outlooks for Indian and Brazilian economies were 7.5% and 2.3% respectively.
The euro zone is expected to boost by only 1%. The bloc has passed the turning point on the way to recovery from recession, the IMF said.
George Soros, the billionaire investor, gave rather disappointing outlook for the economy of the European Union. In his opinion, the EU will face the Japanese-style tough stagnation. And, the Old World may not go through it. “Now we see that the European economy is getting some oxygen. And I hope financial markets are breathing a sigh of relief. But what is facing Europe, unless there is more adequate change, is long period of stagnation. Nations can survive that way. Japan is trying to break out 24 years of stagnation, which Europe is just entering. The European Union is not a nation; it is incomplete association of nations. And, it may not survive 26 years of stagnation,” he stated.
So, the estimates at 2.4% for Great Britain look much more promising, especially against the background of the European prospects. The British financiers believe it is the new proof that government policy is effective.
As for the problems the developed countries might face, the deflation risk is the number one enemy, the IMF writes. Such powers like the U.S., Europe and Japan will do their best to avoid the low inflation level. That, together with high unemployment, will force the regulators to introduce rather strict stimulus. Moreover, experts warn that the lower inflation might cause the debt burden increase and interest rates hikes. Such a state of affairs is likely to hamper the economic growth.
2014 is successful for the global economy in general. Nevertheless, we should do not rule out the fluctuating raw materials cost and general political instability in the world, which can change the current situation drastically.
Janet Yellen’s appointment as a head of the US Federal Reserve System has brought no surprises. It was a matter of discussion during past several months. No disputes were seen among the voters, but now many experts try to predict further developments when Ms Yellen leads the central bank. The opinions are divided – some of experts support the new leader and some of them foresee negative consequences for further economic growth. One way or another, the woman with a great experience of life, in the economic field in particular, took the helm of the Fed.
Janet Yellen and the “quantitative easing” (QE) program are inseparable. Some experts say it was Ms Yellen who offered this crucial project. However, this program has already become a sticking point for many experts who are pessimistic about its continuation. The ascension of Yellen worsens this sentiment as she keeps saying that the stimulus measures will not be tapered until the economic conditions become better and the US economy shows steady growth.
It is only fair to add that the asset purchase program brought positive changes. For instance, the US stock market found the road back to positive territory, and the national currency started strengthening versus the European counterpart. Nonetheless, the situation should be viewed objectively. QE3 is gradually becoming a kind of a drug for the American economy, and the withdrawal of it will cause stagnation at all levels.
Even Janet Yellen understands the program cannot last forever as it will create grave risks for the financial stability. She believes it is very important not to go too far and keep it in proportion: QE is to be wound down not too early and not too late. The central bank has already started tapering, but it is still far away from the finish.
The new Fed’s head has emphasized earlier that the government has no certain plans on scaling back the quantitative easing. In other words, the vessel will drift across the ocean until it reaches the shore. The economic situation should be monitored daily. QE cannot be abandoned until there are clear signs of progress. So far, the economic growth pace has been vastly disappointing.
Undeniably, the current stock market dynamics is a bright sign, but a high unemployment rate raises fears around the health of the US economy. Janet Yellen will struggle hard with unemployment. The modest inflation causes concerns as well. And, according to the Fed’s Chairwoman, this is the major proof that it is too early to taper the stimulus measures.
However, this medal has a reverse side. Yellen’s opponents say that the dovish policy of the central bank inflates the debt bubble in the world market that undoubtedly will affect the global economy.
In any case, Janet Yellen has only few options to act. Of course, she can announce an immediate trimming of the QE3 program, and the aftermath of this action is easy to predict. Any abrupt move has drastic consequences for the economy.
The other possibility is gradual scaling back of the stimulus, which will be followed by another similar project, and the economy will be able to see short-term improvements further.
For sure, Janet Yellen does not favor tough and radical steps. She is used to acting prudently, thoroughly estimating all probable consequences of every movement. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Ms Yellen said. That means the Fed will not surprise the world community in the nearest future.
Everyone remembers that in early 2013 the U.S. economy, but more precisely, the valid U.S. budget encountered current money pressure that caused a risk of the so-called fiscal cliff threatening a tax hike and social expenditures curb. In practice, a sharp fiscal cliff did not happen. However, the U.S. President had to explain American nationals why healthcare and education would fall short of a massive part of the budget approved in late 2012. Besides, taxes had to be upgraded marginally for the whole population, although the Democrats had called for the tax hike only for the rich. Anyway, the U.S. government was able to meet the fiscal challenge and handle it smoothly. With the lapse of time, such awful words as “a fiscal cliff” faded from view mainly due to the fact that later in 2013 America faced even more severe turmoil.
The crisis in Cyprus did not combust on such a vast scale as in Greece. This is not only because Greece’s area is in large excess over the island state Cyprus, but also due to the fact that the Cypriot crisis concerned entirely the banking sector. Interestingly, the banking sector’s failure in Cyprus stroke mostly those deposit holders who are outside of Europe; that is why it was left without much financial investigation. The E.U. policymakers suggested the bailout package, implemented the money laundering scheme, and assigned the local government to conduct structural reforms to restore macroeconomic imbalances under the supervision of the Troika, or three loan suppliers such as the EC, the IMF, and the ECB. Russian deposit holders turned their attention to Latvia’s and Ireland’s banks, while Europeans put their trust in local banks, in particular banks from the countries with a credit rating above “Aa”. To sum up, the crash of private Cypriot banks cannot be considered as the event of the global or European scale since it gives place to other world events because of its local significance and some risks for shadow assets in the global markets.
In September, the Republicans and the Democrats were involved in bitter political fighting regarding the U.S. budget for 2014. The Republicans rejected flatly all Democrats’ proposals bearing in mind that letting down the Republicans’ budget draft the Democrats would never get approval to raise the state debt ceiling which had to be reached on September 17 and therefore could lead the economy to the default. Everyone understood that it would never happen, otherwise the involved parties would be found guilty; the Democrats would be accused of short-sightedness and the Republicans – of single-mindedness.
Eventually, the pro-Republican budget was passed; meanwhile, the government’s debt deadline was rescheduled. It is worthy of note that amid unwise bipartisan fighting in the U.S. Senate, Chairman of the Federal Reserve Ben Bernanke developed the clever policy. It is his quantitative easing program that is supposed to save the American economy, but not the senators and the President. Read the rest of this entry »
Dear Customers, Partners, and Friends,
InstaForex team would like to express heartfelt congratulation on Christmas and New Year. We wish you a very happy and joyful year ahead with great achievements, personal and career successes, new journeys and pleasant acquaintances, and the most important things – health, happiness and love.
Looking back on the year of 2013, we can say it was not that simple for business people. The difficult economic situation along with significant market volatility and other external economic factors to some extent affected big investors, households around the world, and all of us. However, we hope that you have gone unscathed through the past year and have become stronger, wiser and more experienced. For everyone, the year of 2013 was different but all of us planned our future and worked. We worked hard so that the next year would be more successful and would be the time of new beginnings and remarkable accomplishments. You should meet the New Year having these positive thoughts.
Summing up the results of 2013, Installable would like to take the opportunity to look back on the past year’s achievements most of which were possible thanks to you, our clients and partners! In early 2013, InstaForex extended its wide range of bonuses, adding 45% Bonus. The beginning of the summer was marked with unparalleled 250% Bonus for new customers.
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Be with InstaForex in 2014!