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The world is most likely in Recession.

Posted by Adrian on September 11, 2008

How long and how deep a global recession will be is still speculative, but with markets still unwinding, particularity the credit markets. This recession could be a long one. Inflation is still jumpy, with demand for commodity imports from China slowing. The one commodity to watch will be oil and it’s extend of decline down -$44/ -$45 a barrel (current range 103-104 from highs of 147 in 11th July 2008). Yet OPEC refused to increase production and in fact cut production output. This would indicate despite the global slowdown oil still could remain at historically higher levels, compared to other global recessions and the decline in demand for oil.

Risk aversion has crunched down a lot of the high yield currencies, namely the Australian Dollar in which now looks like it’s still in a corrective sell off. The AUD was one of the high yeilders based on the Australian commodity export boom, which stoked inflation, hence the high cash rate of 7.00%. Although the global slow down and lessor demand for commodities, particularly from China has shot the AUS/USD down from 0.98 (July 15th 2008) to 0.79 (current trading) . As mentioned the AUD could be in for a substantial correction it it’s value. Declines could certainly fall into mid 0.70. Much like the European dollar, with the USD strengthening (although it could still fall more), all high yielders are been sold off including gold. Gold looks oversold, bouncing off it new suppoert of 744, down from previous support o f 772. The trading range between those to supports is 28 points; gold looks unstable with those lower price ranges. But for a rally, you’ll need the USD to tank.

So with the commodity markets (price declines effecting commodity sensitive currencies) slowing rapidly and shipping slowing down (globally) – this would be a good indication of a sharp global economic retraction.

refer to Baltic Dry Index (shipping index):


One Response to “The world is most likely in Recession.”

  1. […] rise as quickly has it has in a short period of time is impressive. Although note as discussed in The world is most likely in Recession, gold was showing signs of instability in the lower price ranges; so a large rally was on the […]

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