January has been a month of uncertainties, triggered globally by a volatile Chinese market and crude price fall. However, the reason pulling down the Chinese equities is still unclear, says James Glassman, Senior Economist at JP Morgan.
Speaking to CNBC-TV18, Glassman insists this doesn’t mean global economy is in trouble, rather it is in a positive state. He believes oil market conditions are positive for emerging markets like India and China.
Talking on the Federal Reserve announcements scheduled on Wednesday, he expects the US monetary policy regulator to say that the country’s (US) economy is on course and is growing faster than the long-term estimates on the back of improving labour markets.
He is of the view that Fed would sound dovish and will try to talk the worries down of September, where they had highlighted the concerns about the global economy. He does not expect Federal Open Market Committee (FOMC) to move on policy till March.
Latha: This volatility, when does it end? We are discounting the same cues over and over again. The low growth story or the Chinese instability, the Chinese currency has behaved itself admirably for the last 10 days. Does this volatility end?
A: I do not know. It is peculiar to me. To an outsider it is peculiar because obviously, China has challenges, but China has a lot more control over the situation than many people understand. The thing that is most strange for an economist is that the equity market seems to be uncertain about what is happening with oil markets and what that means for these economies. For the global economy, it may be neutral. For every winner there is a loser. But, for countries like India and China and Japan and Korea and the US and Europe, what has been going on in the oil markets is a net positive. So, it is a little odd. I suppose we are going to see this volatility for a little while longer until we see a little more clarity on what is happening to growth in these regions.
But, I really think that the benefit to countries, to regions like Europe and the US and much of Asia is very overwhelming. It is a very big challenge for the Middle-east and for Russia and for all the oil producers like Canada and Mexico. So, it is a little unclear where the volatility is coming from because I do not really think that these events mean the global economy is in trouble. I think the global outlook for 2016 looks fairly positive.
Sonia: Do you expect the US Federal Open Market Committee (FOMC) tone to be dovish at the policy today, purely because of the volatility that we have seen globally?
A: That is the expectation and frankly, there is no reason for them to have a strong view, because most people do not think that they would do anything anyway until March or April or maybe June. So, my guess is that there is a lot of information out between now and the March Fed meeting so, my sense is they will give a nod to the concerns about what is going on globally, but I do not think that the basic story is going to change much.
I do not think they are going to leave you with the impression that they have given up on the idea that they need to normalise interest rates. I think that idea will still be in the background. It is just that for now, the tone of this statement may be a little more dovish and you might have thought before, but only because the markets are kind of volatile and there is a little bit of concern about what is going on in the rest of the world.
Latha: As a market expert, what are you expecting the Fed to say? What is it they should say that might be a sal for the markets?
A: I think they will say that the US economy is still on course, it is growing faster than it is long-run trend which is why the labour market is doing so well, but they will try to acknowledge the dangers that the struggles are having without making too much of it. If you remember, back in September, when they decided not to raise interest rates when many people thought they would, they highlighted, they almost exaggerated the worries about the global economy and it actually had a very negative impact on the market. So, my guess is recalling that experience, my guess is that they might be inclined to not try to make as much, they will downplay it a little bit, the concerns about the global economy.