The US is bleeding day after day, mainly to the economic advantage of the Chinese. International retail investors have long since withdrawn from the US stock and government bond markets. Any prediction of the future trend of the US dollar requires equally careful considerations.
So what the US really needs is a revaluation of the Asian currencies in particular. Not only in the United States, but also in the rest of the world given the American position as a growth engine.
The housing market – the obvious victim
Does it follow that the housing market will be affected if economic growth slows, since the economic downturn following the bursting of the stock market bubble in the early years of the millennium did not have a significant impact on real estate? prices. Before looking at the possible implications for housing markets around the world in light of our scenario, it will be useful to explore how house prices have developed in different places. The graph shows housing price growth in several of the world's largest economies.
We have not been able to obtain data on developments in Germany, but other sources (eg The Economist) indicate that house prices in Germany have fallen by around 3% since 1997. A look at the chart reveals that it was in the late 90s that house prices really took off. In fairness, it must be said that there are countries in the eurozone where housing prices have increased significantly.
The biggest increases were recorded in Spain and Ireland, where house prices have risen by more than 50% since 1997. In contrast, in Germany and Japan, house prices have fallen compared to disposable income (by around 20-25% in relative terms). conditions). The figures leave a clear impression of countries that have been buoyed by this rise in house prices and those that have suffered the opposite effect – did anyone mention imbalances.
The increase in borrowing possibilities was caused by the rise in housing prices (in Great Britain, housing prices rose by 15-20% this year).
NOK - the northern light
In this context, Norway and the Norwegian krone resemble the “light in the north”. In short: the Norwegian government puts almost all its oil revenues into the Petroleum Fund. The name 'creditor nation' and the mitigating circumstances for the Norwegian economy due to rising oil prices will have investors jostling for the crown like an ice cream stand in the summer heat.
Range trading has characterized the Swedish krona over the past two years, at least against the euro and the Danish krona. Despite impressive growth rates and economic indicators that are easily comparable to figures from the US and Great Britain, for example, the Swedish krona has failed to establish a convincing trend over the past two to three years. Therefore, we find it difficult to ultimately conclude that this era is over and that the krone will now trend upwards against the euro and the Danish krone.
This is an area of current concern in both the US and the UK. Unlike the BoE and the Fed, the Riksbanken has not yet started to raise interest rates, which is mainly attributable to the weak development in the Swedish labor market. We can only conclude that the Riksbanken has nothing to worry about as long as the inflation rate and the inflation outlook are as moderate as they are today.
Implications for the Swedish crown. It will be difficult to avoid a drop in growth in our part of the world, but now China and the Far East are taking over the role of the world's engine of growth.
SEK – a currency of potential
But 2005 may well be the year we see a real trend in this currency, as Sweden has a number of positives to offer in the somewhat turbulent world that we present in our general scenario for 2005. Let's focus on some of the things that we believe determine the value of the Swedish krone, and which we believe will be in focus in 2005. Compared to the other Nordic countries, Sweden has a very high proportion of large multinational companies, and this can explain a large part of the high correlation with the stock market.
Our expectations for the stock market are not so gloomy that they completely overshadow the positive aspects that Sweden and the Swedish economy have to offer. We expect that periods of unrest on the stock market throughout the year will still affect the krone, but that the year as a whole will not have a major impact on the krone. Instead, we imagine that the krone can gain the status of "a safe haven in turbulent times" like gold and the Swiss franc.
This can be attributed to the fact that, after all, the outlook in Sweden is somewhat brighter than in the Eurozone in general and the US and the UK in particular. As a result, the country has a stronger position than the US and the UK, and because it also offers high growth rates, the country has a solid position compared to the Eurozone. As we mentioned in the introduction, we have to admit that despite all the positive factors, the Swedish krona is still struggling to leave its established range.
In 2005, trading will continue in the range of the Swedish krona relative to the euro and the Danish krone.
Fall of an empire
Seminar
There is no doubt that the gentleman mentioned below was a great military strategist, but it is somewhat surprising that he also predicted the current global trends.
China
Such growth rates are something we can only dream of in Western countries. The "gray" economy is not included in the statistics and this market is estimated to be very large. It certainly oversimplifies the problems if you only mention China as the reason for the problems in the US.
In recent years, China has bought investment goods, for example, in the US, and this trend will continue in the coming years due to the increase in wealth in the country. Europe has also recorded a growing deficit in its trade with China in recent years. Most of the workforce (totaling about 780 million) is still employed in the agricultural sector, but employment in manufacturing and service industries is growing rapidly.
While the Chinese current account has recorded increasing surpluses over the past ten years, the trade balance has been in the red for a short period. It is not unlikely that we will see more rate hikes in the coming period. Not surprisingly, China's return to becoming a dominant factor in the global economy has caused complications in other countries.
As shown in the graph below, the period before 1994 was characterized by a long depreciation of the Chinese currency against the US dollar.
A Chinese rocket
The peg to the dollar is currently at 828.00, and no deviation from this exchange rate against the dollar is allowed. In addition, the dollar's status as the only "reserve currency" in the world influenced the decision, although the introduction of EUR brought a competitor to the world market. There were probably several reasons why China pegged its currency to the dollar.
At the last G7 meeting, where China was present as a guest, the Americans, among others, commented on the development of the Chinese currency. HKD is pegged to the dollar through a currency board (domestic money supply equals USD currency reserves). When this happens depends on the Chinese and therefore indirectly on the development of the economy.
Following the central bank's initiatives to, for example, curb the growth of credit in the country, and due to the rate of inflation, which is likely to have exceeded this year, a soft landing is expected. With the possibility of a soft landing, we believe that the Chinese will slowly but surely shift their focus to the currency. A basket of currencies means that the CNY exchange rate will depend on the development of the currencies that China chooses to include in it.
There are no restrictions on the number of currencies included in the “basket”.
Metal fatigue or new highs?
The remaining excess capacity within OPEC - reserved for a sudden increase in demand or production stoppage in oil-producing countries - is therefore extremely limited. The high oil price is mainly explained by the limited degree of flexibility in the oil market. The current flexibility constraints are the result of past underinvestment in the oil industry.
The fact is they haven't built a new refinery in the US in 25 years. Unfortunately, these are difficult times and international political unrest remains a joke on the oil market. The imbalance of the US economy, which has brought the dollar to its knees, is one of the main reasons for the rise in the value of gold.
Over the past years, the demand for base metals has increased due to rising global growth. However, there is no doubt that even in a situation of slow growth, fundamental conditions still speak in favor of a further rise in the price of base metals on a global scale. The trend of rising premiums on physical metals is also reflected in the US, Europe and Japan.
Demand for nickel is high in the US and Europe, and supply is struggling to keep up with demand.
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