x Abu Dhabi, UAESaturday 22 July 2017

Investors brace for more market chaos

Global markets face another challenge today when they open to doomsayers and popular anger. Watch video.

More than 700 people were arrested in New York City over the weekend for blocking a lane of traffic on the Brooklyn Bridge as they protested at bailouts for wealthy banks and political kowtowing to business interests. AP Photo
More than 700 people were arrested in New York City over the weekend for blocking a lane of traffic on the Brooklyn Bridge as they protested at bailouts for wealthy banks and political kowtowing to business interests. AP Photo

Battered global markets face another test when they open today to a chorus of economic doomsayers and popular anger at policymakers' inability to put an end to three years of crisis.

More than 700 people were arrested in New York City over the weekend for blocking a lane of traffic on the Brooklyn Bridge as they protested at bailouts for wealthy banks and political kowtowing to business interests.

Across the Atlantic, demonstrators have also taken to the streets in Greece to oppose public-sector cuts the country needed to enact to secure more aid and avoid a sovereign default many observers say is inevitable.

"It's going to default, and it's a question of whether it can be delayed enough to put the structures in place to contain it," said Tom Stevenson, an investment director at Fidelity Investments International in the UK.

Ben Bernanke, the chairman of the US Federal Reserve, is set to testify tomorrow about "Operation Twist", a plan to buy longer-term US government bonds and sell shorter-term debt aimed at stabilising markets. The US will also see a bout of important data this week, including a widely watched manufacturing activity index and jobs figures.

"The coming week sees … [Mr] Bernanke testify to Congress on Tuesday about the merits of Operation Twist and it also sees pivotal US economic data in the form of the [manufacturing] activity indexes and September employment figures," said Timothy Fox, the chief economist at Emirates NBD.

"On the basis of the latest economic reports it seems unlikely that the Fed will see the need to change its approach for the time being … which should help to keep the US dollar underpinned," Mr Fox said.

Economists expect US jobs data for last month to show no significant improvement. A Bloomberg News survey showed economists predicting a median of 50,000 new jobs for the month, not enough to lower the unemployment rate from its 9.1 per cent level.

"The first things employers tend to do when the outlook weakens is they stop hiring," Julia Coronado, the chief economist for North America at BNP Paribas in New York, told Bloomberg. "A lot of indicators are suggesting further weakening in the labour market."

US manufacturing activity is also expected to show little spark this week.

Some of investors' biggest concerns revolve around Greece, which needs €8 billion (Dh39.3bn) of additional aid from the EU, the European Central Bank and the IMF this month to avoid default.

The so-called troika of regional and international organisations spent the weekend evaluating steps Greece has taken to reduce spending and raise revenues ahead of a decision this week on a further round of aid.

While austerity has been the prime condition of more aid for Greece, which has debts totalling more than 150 per cent of its GDP, higher taxes and public sector cutbacks have left Greeks seething.

George Papandreou, the Greek prime minister, held a cabinet meeting yesterday to finalise new state job cuts to appease the troika. The scheme would shuffle 30,000 workers off to a temporary "labour reserve" to reduce costs until the government could afford to bring them back.

Finance ministers from across the euro zone are set to meet today in Luxembourg to discuss releasing more bailout money to Greece.

Olli Rehn, the EU commissioner responsible for economic and monetary affairs, is expected to give ministers the IMF's perspective on the situation.

Even as Europe tries to save Greece, many observers say it is already too late, and the question is when, not if, Athens will default on its debts.

Regional stock markets ended flat yesterday, giving little sign of how global markets might open today.

In the past three months, global investors have fled stock markets in favour of safer assets. As markets in the US and Europe fell, US government bonds rose by the most since 2008 during the third quarter.

afitch@thenational.ae