Fed proclaimed the interest rates unchanged. Janet Yellen prefers to accept advices of European financial authorities, who stressed the danger of hiking official interest rates because of the global slowing down. IMF’s Christine Lagarde mentioned, that higher interest rates could damage the gentle economy. Fed still insists to raise the rates this year, so let’s count US dollars and keep them on our accounts. Meanwhile the reasons for postponing the increase of the central bank benchmark rates are obvious.
1) Chinese economy gets bogged down in the trend of phlegmatic industrial production. The most recent data show the production gained 6.1%, 0.3% of below expectations. The Communist party is going to “blend” state and private capital, while reforming “zombie enterprises”. The weakness of the economy pushes the central bank to continue cutting down interest rates.
2) What does it mean for all of us? Goldman Sachs already gave an answer by lowering its 2016 forecast for oil prices. First of all, the nightmare “$20 per barrel” is approaching as a reasonable price amid Chinese slowdown, Russian and Brazilian stagnation, and the forthcoming Iranian oil. In the early February Bizhan Zanganeh has mentioned “$25 per barrel” as a reasonable price for Iranian oil. The world was sad and silent, and traders from the global oil markets have been thanking the anti-Iran sanctions. However, the word was pronounced, the thought was sown – and here we are in the middle of September. According to Goldman Sachs analysts, US crude will change hands for $45 a barrel, meanwhile Brent will drop to $49.50 a barrel.
Nevertheless the bleeding Russian economy is a factor to consider because of the new initiative of the president Putin. Russians have mentioned that they had worked out their budget on the basis of $50 a barrel, so they are running out of money. Notwithstanding Russian president is supporting Syrians, sending troops to fight for Assad. Mister Putin knows how to attract attention and to threaten the world. Our prime-minister Netanyahu is going to visit Moscow. Benjamin Netanyahu mastered complicated speculations and experienced in persuasive speaking. However, with mister Putin the appeal to logic and reason does not match the expectations of the audience. The leader of suffering Russia becomes very sensitive. He lacks signs of respect from Western politicians, so he is generating the context for getting their attention. Putin is waiting for the moment, when BP will recollect its greatest business partner. He also is anticipating, when the president of Venezuela N. Maduro will manage a meeting of oil exporters all over the world in order to hypnotize prices. The president Putin understands very well how to provoke the world and to demonstrate citizens of Russia his influence all over the globe. At the moment Vladimir Putin is searching the opportunity to impress the public before his appearance in UN meeting. Thus the task for Netanyahu is a troublesome one.
So the delay of the interest rate raising in the USA suits the situation. The markets are passive, currency wars will not loom and the globe just breathes looking around. Next week we will return to the oil dropping routine.