US inflation figures heighten expectations of Fed rate rise…. Oil refinery in flames in Iraq but the region seems to be holding up… China dims the US LED industry… and the IMF says we’re in a global housing bubble….
US Inflation Higher – Will Rates Rise Soon?
The Federal Reserve is expected to react to yesterday’s higher-than-expected jump in inflation and many analysts are suggesting an interest rate rise could be closer than previously thought. European stocks have been cautious so far today as a Fed rate rise would move the bank further away from the ECB’s recent rate cutting and would put pressure on the euro. Around the world, especially in emerging markets, shares fell as fears grow of investors switching funds to the US if more favorable rates are imminent.
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Iraq Oil Plant In Flames
There will be further pressure on oil prices today with news that Iraq’s main oil refinery has been targeted by insurgents and part of the plant is in flames. Although the refinery is a domestic facility and will not directly hit exports, it will increase anxiety about Iraq’s stability and whether the export oil fields in the south will eventually be breached. Meanwhile, other countries in the region seem to be well protected from the issues of their neighbour. Saudi Arabia and Kuwait are among countries that would traditionally have suffered from any disruption or unrest in the Middle East but it seems that, so far at least, they are not seeing any economic challenges. Investors are still buying their bonds and experts say it is due to monetary reserves that the nations have built up to protect themselves from instability in the region.
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China Dims US LED Industry
It’s an industry that is starting to shine brighter across the world as lighting firms switch to using light-emitting diodes or LEDs for their products. This is being boosted by governments phasing out the use of ‘old style’ lighting in favour of environmentally friendly alternatives. LEDs were developed in the west (and Japan) but as we have seen with solar panels, the Chinese could be poised to steal our thunder (or should that be lightning?) With state-funded factories all over eastern China, they are well positioned for manufacturing, and although their focus is currently on the low–wattage LEDs used in TVs, they may well increase manufacturing in lighting LEDs. Although the Chinese LEDs are lower cost, they may lose out to those seeking value; the US made lights typically last far longer, up to a decade, while the cheaper alternatives are said to often fail after a year or less.
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Japan Growth May Be Slowing
The world’s third largest economy may be slowing down. The country’s imports fell for the first time in eighteen months, but the trade deficit, although narrower, is still in the red, after exports also slowed. The Bank of Japan may have to continue or expand stimulus plans, as the IMF suggested last week. Domestic demand has fallen following sales tax rises implemented in April. Before the increase, retail was booming, although this was largely to avoid the higher taxes.
IMF Warns of Global Housing Bubble
The International Monetary Fund says that there is a global housing bubble which must be tackled through tighter regulation of lending. Speaking to Germany’s Bundesbank yesterday, the IMF deputy MD Min Zhu said that rising house prices are a significant threat to the global economy and called for governments to do more. Mr Zhu said that tightening lending requirements and putting greater capital requirements on mortgage lenders is required, along with restricting access for foreign investors to overheated markets. The IMF Global Housing Index shows that prices are 23 per cent above where they were in 2000 and 3.1 per cent up on last year.
