Although tensions between the US and Russia, particularly over Syria, are ratcheting up, the real concern might well be the increasing economic stand off between Europe and the US and what this might mean for global financial stability.
Not only does there appear to be little chance of agreement anytime soon on TTIP (The Transatlantic Trade & Investment Partnership) , there appears to be the potential for a growing war over the financial affairs of large US corporations operating in Europe, such as Apple and the on-going fall out over the 2008 financial crisis which has resulted in enormous fines being imposed on various banks by the US Department of Justice . The most notable of these is the recent $14bn fine imposed on Deustche Bank for the alleged mis-selling of mortgage backed securities. It seems odd that this sum is almost identical to the one imposed by the EU on Apple for tax avoidance – or should that be evasion? Fines such as these are not new and US banks, such as JP Morgan and Goldman Sachs have been subjected to similar sanctions. However, where the latter were able to have their fines substantially reduced, Deutsche appears to be battling to do the same.
This looks very much like a tit for tat war between the US and Europe. What is of greatest concern is the danger of a repetition of the financial crisis of some eight years ago unless some sense prevails. Deutsche is solvent and, on the face of it, remains strong but it may find it very difficult to withstand the level of fine the US DOJ wants to impose. Needless to say, the German bank is a very significant player in the European economy and beyond. With the fortunes of banks and economies being so interconnected it is to be hoped that sense will prevail sooner rather than later,
Meanwhile, markets were positive in September with the JSE Allshare up 0.9% (+4.8% for the year). The MSCI world was better by 0.6% (+6.17% for the year). The best performing asset class was Bonds which were 3% positive for the month and 15.1% for the year to date. Listed Property has once again been positive and is now +8.8% for the year so far. Even the Rand outperformed the USD by 7% for the month and 12.7% for the year so far.
Once again, all eyes remain on the US Federal Reserve with many observers expecting rate hikes to commence before the end of the year. Gradual increments of 25 basis points can be expected with some analysts expecting a total of three before the end of next year. Needless to say this will have an effect on markets.
Not to be forgotten in all this is the aftermath of Brexit and particularly whether it will be what is termed “hard or soft”. Last week holders of the UK currency where hit hard in what was called a “flash crash” when the pound plunged 6% against the USD in ten minutes following the Prime Minister’s declaration that the UK would invoke Article 50 to leave the EU by no later than March 2017! We in SA might be used to similar gyrations in the value of the rand but this was extraordinary for a major currency and underlined the on-going concerns related to Brexit.