Edward Hadas

Intel and Rio pull markets in opposite directions

Edward Hadas
Jul 14, 2010 21:17 UTC

It’s the beginning of a strong economic recovery. Just ask the folks at Intel. The chip producer is smiling because companies “have some breathing room in the economy and their budgets”, as chief executive Paul Otellini put it on Tuesday. Or maybe it’s the end of a weak recovery. Tom Albanese, the boss of miner Rio Tinto, subsequently noted “fears about a possible double-dip recession in OECD countries and a slight slowdown in Chinese growth”.

Both chiefs are optimistic for the long term. Why not? The enriching of most of the world’s five billion or so relatively poor people will be great news for suppliers, whether of the most basic raw materials or of the most sophisticated electronic components.

But for the next few quarters, investors have a lot to worry about. Tech companies may be doing better — Dutch chip equipment maker ASML increased its 2010 forecasts on Wednesday — but the macroeconomic data from the United States and much of Europe remains largely mediocre. Euro zone industrial production in May, released on Wednesday, grew less than expected.

Investors are torn. They’ve been optimistic for almost two weeks, but that hardly makes a trend. The mood improvement came after a pretty bad second quarter. Indeed, since last September stocks have been up and down, but have generally made little progress while credit spreads have widened.

Financial markets look more fragile than markets for goods, despite near maximal fiscal and monetary support from governments and central banks. Or maybe because that support could end. Modest tightening in China is probably hurting asset prices there and in commodity markets. The fear of similar policy moves elsewhere, especially if they come before economic growth is well established, is restraining investors’ exuberance.

Emerging markets teach developed ones grownup ways

Edward Hadas
Jul 8, 2010 21:02 UTC

The poor are teaching the rich a lesson. It used to be that the world’s less developed nations were the problem children — giving plutocrats too much power while running irresponsibly large budget deficits and failing to overcome deep internal imbalances. Now, rich countries look like the new poor.

Start with trade. China and middle income commodity exporters have most of the biggest trade surpluses while the world’s richest large economy, the United States, still runs the biggest deficit. With surpluses come financial clout and funds for investment. Deficits lead to dependency and, eventually, industrial weakness.

Fiscal deficits are too high everywhere, but after the financial crisis of 2008 the rich are in far worse shape than the poor. Deficits in developed economies like America and Britain have jumped by 7.7 percent of GDP, close to twice the 4.2 percent rise in middle-income countries, according to the International Monetary Fund.