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Archive for February, 2016

The iPhone ‘Special Edition’ will be missing a key feature from the iPhone 6S

Highly reliable supply chain analyst Ming Chi Kuo has detailed what to expect from the iPhone ‘Special Edition’ (SE), the latest rumored device in Apple’s phone lineup.

Apple is expected to launch the iPhone SE, as well as a new iPad and Apple Watch accessories, at an event held on March 21, Buzzfeed reports.

Here’s what Kuo is expecting, via MacRumors:

  • The iPhone SE will feature iPhone 6S internals in an iPhone 5 body complete with a 4-inch screen, including an A9 chip and NFC, which enables Apple Pay
  • One key feature is missing: 3D touch, one of Apple’s key features for the Phone 6S that enables what is essentially a “right click” interaction, is expected to remain exclusive to Apple’s more premium iPhones
  • Changes from the 5S include a slightly larger battery and “slightly curved 2.5D glass like the iPhone 6 and newer”
  • Two storage capacities, 16GB and 64GB
  • Pricing between $400 and $500, lower than the iPhone 6 currently sells for
  • Apple will keep the iPhone 5S as its least expensive new iPhone, which could be discounted to as little as $225

Meanwhile, Nowhereelse.fr has photos of what it says are components for the iPhone SE, which depict a screen assembly, seemingly confirming that the iPhone SE will lack the hardware needed for 3D Touch:

iPhone SE vs iPhone 6S 768x543Nowhereelse.fr

These component spy shots come days after a schematic supposedly depicting the iPhone SE was leaked from a case manufacturer by OnLeaks:

iphone 5 se leakOnleaks

People who are waiting for the iPhone 7, however, will need to hang on until September, when Apple traditionally reveals its new iPhones. Kuo notes that he’s expecting Apple to offer two different versions of the iPhone 7 Plus, one with a single camera, and one with dual-camera technology.

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We just got the clearest sign yet that something is wrong with the US economy

doorman new york apartmentSpencer Platt/Getty

We just got the clearest sign yet that something is wrong with the US economy.

Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years.

The tentative February index was reported Wednesday at 49.8.

That’s below 50, the border between expansion and contraction.

The consensus over the state of the economy had been that gains in the labor market and in consumer spending were propelling growth amid a downturn in financial markets.

This narrative has hit a hiccup, however, with this report.

The services sector, which covers jobs including bartending and counseling, is essentially having its worst month since the recession. The only exception is when the government shutdown disrupted business activity in October 2013.

And because the services sector makes an outsize contribution to US economic activity — about two-thirds — a slowdown here is not good news for the rest of the picture.

Many economists expect that economic activity — measured by gross domestic product — will rebound in the first quarter from the fourth.

But Wednesday’s data shows “a significant risk of the US economy falling into contraction in the first quarter,” according to Chris Williamson, chief economist at Markit.

According to Markit’s release, business activity was slammed by scarce new-work opportunities, as clients lacked confidence in the economic outlook, and snowy weather on the East Coast.

Markit noted that service providers had the weakest business outlook in nearly six years.

Screen Shot 2016 02 24 at 10.06.51 AMMarkit

“Slumping business confidence and an increased downturn in order book backlogs suggest there’s worse to come,” Williamson wrote.

“Any bounce-back from the weather may therefore prove to be only a temporary improvement in a steady downward trend of business conditions.”

Economists had estimated a preliminary reading of 53.5, a slight improvement from the prior reading of 53.2, according to Bloomberg.

The final reading for January showed that the sector was slowing down, as both Markit’s index and the ISM non-manufacturing composite fell.

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One smart stock market analyst thinks this is where we’re headed … (gulp)

1929 stock chartJohn Hussman, Hussman FundsThe calm before the storm in 1929 …

No one knows what the stock market is going to do, but if you want to get an informed sense of what it might do, it helps to understand what it has done.

And in the debate about where we’re headed next, one common mistake is confining observations of market history to recent trends instead of the many generations of market data that are now available.

One analyst who takes this long view is John Hussman of the Hussman Funds.

Hussman’s reputation has been clobbered of late because he missed the market turn in 2009 and then acted on his more recent concern about an impending crash several years too early.

As the market has struggled over the past 18 months, however, Hussman’s concerns have been partially vindicated.

And those hoping that the recent 15% drop from the peak was just a little bobble in a great new bull market won’t like where Hussman thinks we’re headed next.

Specifically …

Here’s where we are:

S&P 500 chartJohn Hussman, Hussman Funds

And here’s where Hussman thinks we’re headed next:

1929 stock chartJohn Hussman, Hussman FundsThe calm before the storm in 1929 …

That latter chart is a chart of the 1929 crash, one of the most famous in history.

Hussman thinks it also loosely illustrates our likely future.

Hussman’s key observation about that chart — and the charts of many other market crashes in history, the most recent two of which he has correctly called in advance (2000 and 2007) — is that market crashes generally follow the same pattern.

First, in a market in which stocks are highly overvalued (as they are today) and in which investors are increasingly risk-averse (as they are today — see the spreads on interest rates between safe and risky bonds), crashes are much more likely than they are in any other market environment.

Second, crashes do not just happen suddenly — for years everything’s great and then one day the market just falls out of the sky. Rather, crashes develop over many months. And the “crash” itself — the period of massive, near-vertical market losses — generally starts after the market is already down about 15%.

That’s the insight to note in the chart above.

And because one observation is rarely persuasive, here’s another Hussman chart, this one showing the crash in 1987. Same pattern. Down about 10% to 20% from the top, some failed recoveries, and then, blam.

1987 crashJohn Hussman, Hussman Funds

And, for good measure, here are charts of the crashes in 2000 and 2007. Same pattern. A general peaking and “rolling over” for many months, followed by a 10% to 20% drop, followed by some stabilization and recovery, followed by a mega-crash.

2000:

2000 market crashGoogle Finance

2007:

2007 crashGoogle Finance

Is that what will happen this time?

No one knows.

But anyone who’s feeling comfortable after a strong week in the markets should at least understand that: 1. The macro environment most conducive to crashes is still in place (overvaluation + increasing risk aversion) and 2. The way the market is behaving now is exactly the way it behaved before the biggest crashes in history.

So, neither Hussman, nor I, nor you should be surprised if the market keeps on dropping and doesn’t bottom until it’s down 50% or more from the peak.

As Hussman noted last week in his usual depressing note, a 50% crash would not even be the worst-case scenario. It would just be a normal correction from valuations we reached in 2015.

The “worst-case scenario,” meanwhile, would take us down 75%.

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Will an iPad Air 3 Help Apple, Inc.’s Tablet Sales Rebound?

By Daniel Sparks Published February 19, 2016 Markets Fool.com

Next month, Apple is expected to launch a new iPad. The rumored tablet will be an iPad Air 3, according to 9to5Mac’s reliable Mark Gurman. If Gurman is right, the iPad could include significant changes, taking some cues from the company’s recently launched iPad Pro. But will significant changes be enough to save the company’s declining iPad segment?

Declining iPad sales
Apple’s iPad unit sales first started declining in the company’s second fiscal quarter of 2014 — or about two years ago. And the decline to follow has been sharp. For context, consider the 38% decline in iPad unit shipments between Apple’s most recent quarter and same quarter two years ago. And iPad unit sales in the company’s most recent quarter are down 25% from the year-ago quarter.

Investors are wondering whether this trend is temporary or representative of a long-term secular contraction in tablet sales. After all, the growing popularity of smartphones with larger displays — phablets in particular — is snapping up share from tablets. Then, of course, there’s the fact that the upgrade cycle for tablets appears to be much longer than it is for smartphones.

A potential rebound?
Apple CEO Tim Cook has been optimistic about iPads even amid a decline in sales.

“We’re very bullish about the future of the tablet market,” Cook said in the second half of 2014 during an earnings call.

Cook has continually cited the iPad’s superior usage statistics compared to usage data for other tablets, the device’s popularity for commercial applications, and Apple’s pipeline innovation in the category, as catalysts for further growth.

Even during an Apple earnings call this summer (via a Reuters transcript) the CEO remained optimistic that the company can count on a meaningful upgrade cycle in the future.

I believe that the iPad consumer upgrade cycle will eventually occur because as we look at the usage statistics on iPad, it remains unbelievably great. The next closest usage of the next competitor, we are six times greater. And so, these are extraordinary numbers. It’s not like people have forgotten iPad or anything. It’s a fantastic product.

During Apple’s most recent earnings call Cook cited data from NPD that pegged iPad’s U.S. market share for tablets priced above $200 at an impressive 85%. Cook also noted an IDC study asserting iPads account for 67% of the U.S. commercial tablet market.

iPad Pro. Image source: Apple.

While it’s not clear yet whether Cook’s optimism for the company’s iPad segment is realistic, investors shouldn’t expect to see a rebound in the current quarter. With Apple’s iPad Air 3 speculated to go on sale during the second half of March, the new product will only impact about two weeks of the quarter.

The true test to see whether there’s hope for iPad sales to begin moving upward again will be the company’s third fiscal quarter of 2016, which begins in April.

Apple’s iPad segment is still the company’s second-largest measured by revenue, highlighting the importance of tablet sales to the company. Notably, however, Apple’s Mac and services segments are close behind. iPad revenue during Q1 was $7.1 billion while Mac and services revenue were $6.7 billion and $6.1 billion, respectively.

The article Will an iPad Air 3 Help Apple, Inc.’s Tablet Sales Rebound? originally appeared on Fool.com.

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Slowdown In The East: Deals And Funding To Startups Sputter In India and China

China-India-Featured-Image

Deal volume in China fell nearly 39% quarter-over-quarter in Q4’15, a drop 3x steeper than the global pullback.

Venture funding and deal activity in Asia took a serious dip in Q4’15 compared to Q3’15. Not surprisingly, this also held true in Asia’s two largest markets: China and India.

In the KPMG and CB Insights 2015 Venture Capital Report, we dug into global investment data including regional looks at Europe, Asia, and North America, as well as analyses of the funding climates in China and India.

Free Report: The Q4’15 U.S. Venture Capital Report
A data-driven analysis of venture capital deals and dollars from Q4 2015

China investment trends

Deal volume in China fell nearly 39% quarter-over-quarter in Q4’15 to 71 deals, the lowest amount for deal activity in at least 5 quarters (a more dramatic drop than the 13% fall in deal count globally). In terms of funding dollars invested, there was a 29% drop in China over the same period (roughly the same as the 30% drop in venture funding globally).

China was home to 8 of the top 10 biggest deals in Asia in 2015, the largest of which was China Internet Plus Holding‘s $2.8B mega-round in Q4’15

The top city for deals was Beijing, which saw $1.7B invested over nearly 30 deals. But Shanghai saw far larger deals on average, accumulating $5.3B in investment over roughly two-dozen deals.

China2

 

India investment trends

The slowdown was even more profound in India, where Q4’15 represented a 46% drop in funding dollars quarter-over-quarter. Deal count also took a hit, falling 18%.

India also saw 2 of Asia’s 10 largest deals in 2015: Olacabs‘ $175M Series F and IIFL Wealth Management‘s $173M growth round. Mumbai was the most active city for deals, with $631M in funding occurring across 20+ deals. The next largest market was Bangalore, which saw $357M in funding.

 

India1

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27 things you didn’t know your iPhone could do

iPhone 6S Plus ip6spFlickr/TechStage

Even though we use our iPhones all day every day, there are still a handful of features that are relatively unknown.

Some of these features are buried in the Settings menu while others are hidden in plain sight.

Plus, there are a few things Siri can do for you that you may not know about.

(Note: Most of these features are available in iOS 8 and higher, while some are available in iOS 9 and higher.)

View As: One Page Slides

 

Respond to texts without unlocking your phone.

Respond to texts without unlocking your phone.

Lisa Eadicicco

You can respond to texts directly from your lock screen by pulling down on the notification drawer and swiping over to the left on the text notification. You’ll see a “Reply” option, and tapping it will let you type a response without having to unlock your iPhone.

Respond to texts while you’re in an app.

Respond to texts while you're in an app.

Lisa Eadicicco

If you’re in an app, you can swipe down from the top and access the notification drawer to answer a text the same way you would on the lock screen.

See which apps drain the most battery.

See which apps drain the most battery.

Lisa Eadicicco

Want to know why your iPhone battery is draining faster than usual? Head over to Settings >General >Usage>Battery Usage. This will tell you which apps are occupying the most battery power.

View every photo someone has texted you, and vice versa

View every photo someone has texted you, and vice versa

Lisa Eadicicco

There’s an easy way to view every photo and video you’ve sent someone. Just open the messaging thread in the “Messages” app and press the “Details” button in the upper right corner.

Send audio and video messages that self-destruct.

Send audio and video messages that self-destruct.

Lisa Eadicicco

You can send audio snippets and video messages that expire after two minutes. If you head to Settings>Messages and scroll to the bottom, you’ll notice a section for audio and video messages. You can choose to let them expire after two minutes or never.

Share your current location with a friend.

Share your current location with a friend.

Lisa Eadicicco

If you don’t feel like explaining where you are, you can simply send your location to another person via text message. Just tap the “Details” button in the upper right corner of your message thread and select “Send My Location.” 

Let your friends track where you go.

Let your friends track where you go.

Lisa Eadicicco

If you want your friends or a family member to be able to track you as you move, you can complete the same steps mentioned in the previous slide and choose the “Share My Location” instead of “Send My Location.” You can choose to share your location for one hour, until the end of the day, or indefinitely.

Mute text messages.

Mute text messages.

Lisa Eadicicco

You can mute text message notifications for individual contacts and conversations. Just head over to your messaging thread and switch the “Do Not Disturb.

Leave a group conversation.

Leave a group conversation.

Lisa Eadicicco

Group texts can be effective for reaching many people at once, but also annoying. If you want to leave a group conversation, simply tap the “Details” button in the upper right corner of the group conversation and select “Leave Conversation.”

Name a group conversation.

Name a group conversation.

Lisa Eadicicco

If you frequently chat with the same group or are talking with multiple people about a particular topic, naming a group conversation can be helpful. To do this, head over to “Details” in the message thread and fill in the “Group Name” field with an appropriate title.

Multitask within emails.

Multitask within emails.

Lisa Eadicicco

If you’re in the middle of an email, you don’t need to trash it to return to your inbox and browse other messages. As you’re composing an email, simply tap the top of the message where it says either “New Message” or the subject and drag it down to the bottom of the screen. This will push the message to the bottom so you can look at other emails. When you want to return, simply tap the email to keep editing it.

Forward text messages to other contacts.

Forward text messages to other contacts.

Lisa Eadicicco

You can forward text messages to other contacts the same way you would an email. Just double tap the message you want to forward, press the “More” option that appears next to the text, and that specific sentence, word, or phrase will appear copy and pasted into a new message. Fill in the “To” field at the top to forward that message to someone else.

Use Siri hands-free.

Use Siri hands-free.

Lisa Eadicicco

You don’t always have to hold down the home button to launch Siri. If you have the new iPhone 6S, just say the phrase “Hey Siri”to launch Apple’s virtual assistant (any phones older than the iPhone 6S must be plugged in to a power outlet for this feature to work). Just head over to Settings>General>Siri and turn on Enable Hey Siri first.

Have Siri read anything.

Lisa Eadicicco

You can enable Siri to read articles on websites, books, text messages, and more thanks to one of the iPhone’s lesser-known accessibility features. Head over to Settings > General > Accessibility > Speech. Then turn on Speak Screen and Speak Selection. Now, when you swipe down from from the top of the screen with two fingers, Siri will dictate the content of whatever is on the screen.

Tell Siri how to pronounce names.

Tell Siri how to pronounce names.

Business Insider / Matt Johnston

You can also teach Siri how to pronounce names. First, launch Siri and ask her to say the name in question (i.e. if it’s your name, ask “What’s my name?”). When she answers, tell her that she’s not pronouncing it correctly. Make sure you use her pronunciation so that she knows which word you’re talking about. Siri should then ask you how to correctly pronounce the name. Once you do, she will present three ways to pronounce the name. Choose the correct one, and Siri will remember it.

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Debt, defaults, and devaluations: why this market crash is like nothing we’ve seen before

A pernicious cycle of collapsing commodities, corporate defaults, and currency wars loom over the global economy. Can anything stop it from unravelling?

6561Oil-Hotspot-desktop_home

A global recession is on the way. This truism of economics holds at any point in which the world is not in the grips of a contraction.

The real question is always when and how deep the upcoming downturn will be.

“The crash will come, but it would be nice if it came two years from now”, Thomas Thygesen, head of economics at SEB told over 200 commodity investors and analysts in London last month.

His audience was rapt with unusual attention. They could be forgiven for thinking the slump had not already arrived.

Commodity prices have crashed by two thirds since their peaks in 2014. Oil has borne the brunt of the sell-off, suffering the worst price collapse in modern history. Brent crude has fallen from $115 a barrel in the summer of 2014, to just $27.70 in mid-January.

We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before
Thomas Thygesen

Plenty of investors sitting in the blue-lit, cavernous surrounds of Bloomberg’s London HQ would have had their fingers burnt by the price capitulation.

• Mapped: How the world became awash with oil

“They tell you should start your presentations with a joke, but making jokes at a commodities seminar is hardly appropriate these days,” Thygesen told his nervous audience.

Major oil price falls have a number of historical precedents. Today’s glutted oil market is often compared to the crash of 1986, the last major episode over global over-supply. Back in the late 90s, a barrel of Brent crude fell to as low as $10 in the wake of the Asian financial crisis.

A perfect storm

But is the current oil price collapse really like anything the world economy has ever experienced?

For many market watchers, a confluence of factors – led by oil, but encompassing China, the emerging world, and financial markets – are all brewing to create a perfect storm in a global economy that has barely come to terms with the Great Recession.

“We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before,” says Thygesen.

Unlike previous pre-recessionary eras, the current sell-off has seen commodity prices, equities and credit conditions all move in dangerous lockstep.

The S&P 500 trading pit is pictured from overhead at the Chicago Mercantile Exchange in Chicago, Illinois in this late 1980s handout photo. July 6 will mark the end of more than eight decades of open-outcry grain futures trading at the landmark Chicago Board of Trade Building, the art deco masterpiece housing the raucous trading pits that came to be seen as a symbol of turbulent capitalism reshaping the world. CME is closing the pits due to the rise of electronic trading. Now, the vast space once filled with thousands of arm-waving, hoarse-voiced traders, runners and clerks will be home to as-yet unknown new inhabitants lured, perhaps, by a super-fast, sophisticated telecommunications network, or the retro charm of 10 octagonal pits - with steps up the outside and then down into an arena-like space in the middle - where trading was conducted. REUTERS/CME Group/Handout via Reuters ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. REUTERS IS UNABLE TO INDEPENDENTLY VERIFY THE AUTHENTICITY, CONTENT, LOCATION OR DATE OF THIS IMAGE. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. NO ARCHIVES. NO SALES. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. TPX IMAGES OF THE DAY

The S&P 500 trading pit is pictured from overhead at the Chicago Mercantile Exchange in Chicago, Illinois in this late 1980s handout photo. July 6 will mark the end of more than eight decades of open-outcry grain futures trading at the landmark Chicago Board of Trade Building, the art deco masterpiece housing the raucous trading pits that came to be seen as a symbol of turbulent capitalism reshaping the world. CME is closing the pits due to the rise of electronic trading. Now, the vast space once filled with thousands of arm-waving, hoarse-voiced traders, runners and clerks will be home to as-yet unknown new inhabitants lured, perhaps, by a super-fast, sophisticated telecommunications network, or the retro charm of 10 octagonal pits – with steps up the outside and then down into an arena-like space in the middle – where trading was conducted. REUTERS/CME Group/Handout via Reuters ATTENTION EDITORS – THIS PICTURE WAS PROVIDED BY A THIRD PARTY. REUTERS IS UNABLE TO INDEPENDENTLY VERIFY THE AUTHENTICITY, CONTENT, LOCATION OR DATE OF THIS IMAGE. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. NO ARCHIVES. NO SALES. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. TPX IMAGES OF THE DAY

Although a 75pc oil price collapse should represent an unmitigated positive for the world’s fuel thirsty consumers, the sheer scale of the price rout is already imperiling the finances of producer nations from Nigeria to Azerbaijan, and is now threatening to unleash a wave of bankruptcies across corporate America.

It is the prospect of this vicious feedback loop – where low oil prices create financial tail risks that spill over into the real economy – which could now propel the world into a “full blown crisis” adds Thygesen.

So will it materialise?

The world economy is throwing up reasons to worry, as the globe’s largest emerging markets have shown signs of deterioration over the last six months, says Olivier Blanchard, the former long-serving chief economist of the International Monetary Fund.

My biggest fear is precisely that the dramatic shift in mood becomes self-fulfilling
Olivier Blanchard

“China’s growth is probably less than officially reported. Russia and Brazil are doing very badly. South Africa is flirting with recession. Even India may not be doing as well as was forecast,” says Blanchard, who left the Fund after seven years late last year.

As it stands however, he says market ructions still represent a classic case of “herd” behaviour.

“Investors worry that other investors know something bad, and so just sell, although they themselves have no new information.”

Blanchard spent seven years firefighting the worst financial crisis in history at the IMF

But a tipping point may well be approaching. According to Blanchard’s calculations, a 20pc decline in stock markets that persists for more than six months, will translate into a decline in consumption of between 0.5pc to 1.0pc.

“This would be a serious shock. My biggest fear is precisely that the dramatic shift in mood becomes self-fulfilling”.

The first domino to fall

For now, oil-induced financial stress is concentrated in the energy sector.

With Brent set to languish around $30-35 barrel for the rest of the year, prices will persist below the $40-60 barrel break-even point that renders the bulk of US oil and gas companies profitable.

Spreads on high yield US energy corporates have soared to unprecedented highs. “They make Lehman look like a walk in the park” says Thygesen.

More than a third of the entire US high yield bond index is now vulnerable to crude prices remaining low or falling even further, according to calculations from Oxford Economics.

As a result, 2016 is set to see the first wave of corporate bankruptcies in the oil and gas sector. Highly leveraged US shale companies will be the first be picked off. Should escalating defaults have a further depressant effect on oil prices, it could unleash a tidal wave of corporate bankruptcies in the world’s largest economy.

Conditions that usually pave the way for mounting defaults are currently met in the US
Oxford Economics

Indebtedness is not just the scourge of the US. Globally, the oil and gas industry has issued $1.4 trillion of bonds and taken out a further $1.6 trillion in syndicated loans, driving the sector’s combined debt to $3 trillion, according to the Bank of International Settlements. They warn of an “illusion of sustainability” that could quickly turn toxic as the credit cycle unravels.

The question exercising the minds of economists and investors is the extent to which this contagion could metastasize beyond the energy sector, as banks cut off credit access, loans turn bad, and financial conditions enter a critical tightening phase.

“Conditions that usually pave the way for mounting defaults – such as growing bad debt, tightening monetary conditions, tightening of corporate credit standards and volatility spikes – are currently met in the US”, says Bronka Rzepkowski at Oxford Economics.

Such levels of financial distress, more often than not, portend a global recession.

In every instance of the US high yield spread rising above its long-term average, a recession or financial crisis has been nigh, says Rzepkowski, who cites 2011 as the only time the markets sent out a false signal, lulled by the Federal Reserve’s mega quantitative easing programme.

US shale break-even prices remain closer to $60 a barrel

We are not there yet, but worryingly for market watchers, a series of other indicators are also flashing red.

Global equity markets have endured their worst start to a year since the dotcom crash. To paraphrase Nobel prize-winning US economist Paul Samuelson, Wall Street has predicted nine out of the last five recessions, but the current turbulence has an ominous precedent.

Over the last 45 years, the S&P500 has suffered a loss of more than 12.5pc on 13 occasions. Six of these have given way to a recession in the US, providing a more than 50pc probability that a global downturn is just around the corner.

In Europe, stocks have now fallen by 10pc in the last six months.

“Of the 14 previous occasions equities have had a similar decline, seven have been associated with recession, with lacklustre returns thereafter,” says Dennis Jose at Barclays.

He notes investors have begun to pile into “defensive” stocks, such as healthcare and consumer industries.

“The weighting in defensives has increased to the highest levels seen since 1980 suggesting that investors may have already embraced the risk of a recession.”

Dollar danger

Macroeconomic indicators from the world’s largest economy are also beginning to turn sour. The US has already fallen prey to a manufacturing collapse. Service sector data for December showed the slowdown is spreading to the dominant driver of economic growth.

“The shine has come off the US”, says David Folkerts-Landau, chief economist at Deutsche Bank.

He notes the economy is “firing on one cylinder” with consumers the sole bright spot in an environment of still weak capital investment, and a crippling exchange rate that is hurting exporters and squeezing corporate profits.

“It is not a very healthy situation,” says Folkerts-Landau, who forecasts US growth will fall below 2pc this year. “That is a precarious number.”

A crucial part of the story has been the relentless appreciation of the US dollar. The greenback has risen by more than 22pc on a trade weighted basis since mid-2014.

The effects have been felt far beyond the US. The soaring dollar has put record pressure on China’s exchange rate peg, forcing Beijing to burn through its reserves with interventions amounting to $140bn-a-month in December to protect the renminbi.

Meanwhile, China’s capital outflows have accelerated to $676bn, according to the Institute of International Finance.

This policy bind – known as the “Impossible Trinity” of managing a fixed exchange rate, maintaining independent monetary policy, and a open capital account – means a devaluation of some magnitude is all but inevitable.

• Has China lost control of its currency?

“It will definitely be in the double digits”, says Folkerts-Landau. “We will be lucky if the depreciation will be in the lower double-digits by the end of the year.”

“Once you anticipate that, and you are sitting in Indonesia or Latin America, it has an immediate impact on how you think about the world”.

A weaker renminbi would unleash a new wave of deflation in an already fragile global environment, and hasten the pressure on emerging market exchange rates as the world’s currency wars would renew apace.

Federal reverse?

What, if anything, could halt this pernicious cycle of events from unfolding?

In the short-term, analysts are unanimous: all eyes are on the US Federal Reserve. The central bank’s first rate hike in seven years last December has come to look frighteningly premature in the space of just eight weeks.

I have no doubt that the Fed would expand QE
Olivier Blanchard

Events have forced the Fed’s policymakers to take to the airwaves and soothe fears that another four rate hikes are on the way this year. It is a welcome sign for jittery markets, but may not be enough to convince them that the Fed will be nimble enough to reverse course and begin easing should financial conditions worsen.

Others, like Blanchard, are more sanguine about the ability of central banks to ride to the rescue again.

“I have no doubt that, if there was such a decrease in consumption, or if the strong dollar proved to affect net exports more than is forecast, or any other adverse event for that matter, the Fed would wait to do further increases” he says.

“And if things got really bad, I have no doubt that the Fed would expand QE.”

Oil prices meanwhile are widely expected to rebound from their depths by the second half of the year, as dwindling investment and the buckling of the vulnerable shale players begins to bite on production levels.

This in itself presents its own set of challenges. The lower oil prices fall, the faster buyers are expected to flood back in, with violent upward movements already in evidence over the last ten days.

In the longer term, even the postponement of the next global recession will do little to assuage fears that world could find itself defenceless against another round of mania, panics or crashes.

Two of the world’s three major central banks have slashed interest rates in to negative territory. Monetary tools will need to be deployed more creatively, perhaps going as far as injecting stimulus directly into the veins of the economy.

Should the world manage to ride out the perfect storm of 2016, next time round, answers will be difficult to find.

http://www.telegraph.co.uk/finance/economics/12138466/when-is-the-next-financial-crash-coming-oil-prices-markets-recession.html

 

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