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6 Straight Days of Gains, But What Goes Up…

Momentum in Europe didn’t carry around the rest of the world yesterday, as the IMF a pretty dismal assessment of the global economy.

The International Monetary Fund see risk of stagnation in G7 economies, as a result of faltering emerging markets and persistent low inflation – two things which are intrinsically linked. They say the US and the UK will still be the fastest and second fastest growing major economies, but have still reduced growth forecasts in both by 0.2%. 

Commodity driven economies will be the hardest hit, the IMF predict, with exporters of raw materials suffering with already low prices and further falling demand. That fall in demand is stemming from China, which continues to slow down, affecting almost every economy in the world to some degree. Interestingly, the UK would be among the least affected by China, with a 3% fall in Chinese GDP growth only expected to take 0.1% off UK GDP.

Perhaps the worst part of the IMF assessment is that they didn’t offer much in the way of ideas in how to deal with the issues they’ve identified!

Something that caught our eye this morning was a very brief note from Zerohedge. They say that short interest in the New York Stock Exchange has reached its highest level since July 2008 (weeks before it all came tumbling down). They say that there are two possible outcomes from this: 1, central banks intervene and cause a ‘short squeeze that sends markets to new highs. Or 2, another collapse is just around the corner.

Despite the massive short positions (or maybe because of) stocks in Europe are on their sixth straight day of gains. Markets have opened higher this morning, despite the IMF’s assessment. This comes after Asia saw some late rallies, after initial disappointment that the Bank of Japan kept their monetary policy unchanged. Markets were hoping for even more stimulus, despite the current allocation for the programme standing at $665bn.

China have been out of the news in the last week, as they have been on holiday. This changes tomorrow when stock markets re-open and there is a lot of catching up to do. If we see a positive day throughout London and New York sessions, then we could be on for a massive catch up rally in Shanghai.

Overnight oil prices have continued to rally, with inventories in the US continuing to decline. The rally in oil is showing some light relief to the wider commodity market and, with that, commodity currencies. Australia, Canada and South Africa have all seen decent performances in their currencies in the last couple of sessions, some of which will be welcome, but surely Australia would rather their Dollar continued to depreciate.

Today we look at UK industrial production numbers, a UK preliminary GDP estimate for September and more oil and gas inventories from the US. We’ve also got a keynote speech from David Cameron today, which might give us some insight as to the EU in/out referendum date.