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Global Confidence Rollercoaster Hits Downdraft

Posted by Larry Doyle on February 10, 2010 8:28 AM |

Rollercoaster…..!!!

I used the analogy of this amusement ride yesterday to describe our global economy and markets. A day at Six Flags seems far more appealing than the continued twists and turns of our global economy. Today, the riders on our global economic rollercoaster indicate they see further downward motion with hard twists and turns ahead. Bloomberg surveyed close to 2,500 ‘riders’ the first week in February and reports, Global Confidence Ebbs on Concern Budget Gaps Will Hurt Rebound:

Confidence in the world economy dropped in February on concern worsening government finances in some European nations will derail the global recovery, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index dropped to 54.9 from 66.6 in January, when the reading was at the highest level since the series began two years ago.

What drove the 20% decline in this reading? In one man’s opinion:

“People aren’t concerned about the exit strategies from countries, they’re concerned about the total debt level,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York.

I find that comment a little suspect. Total debt levels have not changed appreciably. They merely have not gained focus given the rising asset levels driven by government stimulus, which is nothing more than increased debt.

Keep your seat belt fastened. What else do we learn?

The fallout from the budget crisis in Greece has led investors to become the most bullish on the U.S. dollar since November 2008. The dollar confidence index rose to 55.7 from 53.1 in January.

The U.S. Dollar Index is up approximately 3% on the year. Further appreciation of our greenback will put those who are short dollars via the dollar carry trade firmly in the ‘pain chamber.’ Envision the financial equivalent of the bends.

What are the confidence levels for specific geographic regions?

The confidence gauge for Western Europe fell to 49.8 from 55.5 last month, dropping below 50 for the first time since November.

What about our home turf?

A measure of U.S. participants’ confidence in the economy fell to 41.3 this month from 54.4 in January.

Ouch!! That reading is close to a 25% decline. Little doubt why the crowd in Washington is feeling increasing heat from the electorate. Why are Americans increasingly despondent?

“It’s a jobless recovery,” said Jonathan Basile, an economist at Credit Suisse Group AG in New York and a regular survey participant.

Is it any surprise that confidence is always a reflection of employment? With the U-6 still in the high teens and likely to stay there, this reading should not surprise.

Let’s look eastward.

Asia’s index fell to 70.8 in February from 79.8.

A 10% decline but still much stronger than other regions. However, not all Asian countries are enjoying this ride:

The confidence gauge for Japan dropped to 40.6 from 44.1.

How is the global confidence decline reflected in outlooks for global equity markets and interest rates?

Most Bloomberg users were less optimistic on the outlook for their equity markets in the next six months, with respondents in the U.S., the U.K. and Spain turning bearish. Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

I knew there was a reason why I do not like rollercoasters. This Bloomberg survey just gave me several more reasons.

Keep those seat belts fastened.

LD

  • TML

    Very interesting that the two largest economies in the world, those being the U.S. and Japan, have the lowest levels of confidence.

    The weight of that debt is getting mighty heavy.

    • LD

      The weight of that debt is only getting heavier in each of these countries given the expected debt to GDP levels for both Japan and the U.S.

      A lot of that weight is locked in due to the government’s entitlement programs.

      I believe it is a question of when – not if – Uncle Sam will enact new means guidelines as to who is eligible for certain entitlements, such as Social Security.






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