GCC markets edgy on double-dip fears (page 1 of 2)

Christian Gattiker, Head of Global Research and Strategy at Swiss Private Bank Julius Baer, is a bit confused about the double-dip idea. "The ongoing discussions about a double dip pretend that the first dip is already over. But this is not the case, really." Indeed signs for a rough summer can already be seen.

The recent US recession has been the longest one since the fall of Europe's iron curtain. Economists call it the Great Recession. Triggered by a housing bubble and excessive bank leveraging, it lasted from December 2007 until July 2009 and eventually launched a global crisis. A business cycle contraction is called a recession only if the GDP of a country falls for two consecutive quarters. In Q3 2010, when the US GDP grew by 2.2%, the recession was officially over. The first quarter 2010 advanced 2.7%. America benefits from the Obama administration's $787bn stimulus package from February 2009.

US Data releases point to falls

But what disturbs economists like Gattiker is that US non-farm payrolls declined by 125,000 in June - the first drop since December 2009, but unemployment slid to 9.5%. US factory orders declined in May by 1.4% on a month-on-month basis. And the US is still the world's largest economy (despite all advancements in the emerging markets). But there were also encouraging signals: In the latest quarter, S&P 500 firms' earnings surged 57%. This was the second quarter in a row that the S&P 500 recorded earnings growth after a record nine straight quarters of year-on-year declines. Confusing and contracting signals, wherever you look.

The Asian factor

Higher income in the US allows Chinese and Japanese firms to export more toys, textiles and cars. "Watch China", Dr. Nasser Saidi, Chief Economist at the DIFC Authority, advises those who are unsure about the state of the world economy. China's GDP grew by 11.9% in the first quarter. But the China Academy of Social Sciences, a Beijing government think tank, expects that growth in the second quarter slowed down to 10.6%. They have good reason to think so. Shares of Alibaba.com, China's largest B2B-portal, based in Hangzhou, and a good indicator for the flow of products from East to West, ended the first half of the year flat.

Beijing's decision to loosen the Yuan-peg to the Dollar has triggered hopes for US exporters who suffered from the relatively strong greenback against the Yuan or Renminbi ("people's money"). The peg has tied the Yuan at 6.83 to the US dollar for 23 months.

Neighbour Japan, 100% dependent on oil imports, is even more interested in a weak Yen as one of the top three export nations. "Last week the yen rallied toward 115 cents, as the lack of confidence in financial markets and global economic conditions drove up demand for the currency", the CPM Group writes in its weekly analysis for the Dubai Gold and Commodities Exchange (DGCX). The Bank of Japan recently announced that it would provide 3 trillion yen of loans to banks in order to stimulate the domestic economy.

The Euro fell early last week amid concerns that Eurozone banks would find it difficult to roll over more than $500bn of debt. The UK, France and Germany ("core Europe") have implemented tough saving programs which dilute an economic revival. In the EU countries of Greece and Spain ("club med") spending cuts have even led to violent demonstrations. On the other hand, the Ifo Business Climate for industry and trade in Germany improved slightly in June, and unemployment has fallen to a 12-month low in the EU's largest economy.