Two forces

A LOT has been going on in financial markets in recent weeks and, as always, it is difficult to sort out the trends from the noise. The ever-shifting headlines on Greece have not been conducive to calming investor nerves; at more than five years in duration, the Greek crisis has now lasted longer than 10% of marriages. But it is the economic background, and the potential knock-on effect on central bank policy, that is probably at the heart of the volatility. Deflationary forces in some parts of the world are being countered by inflationary forces elsewhere.

Whether you blame it on China, lower commodity prices, or simply the stronger dollar, all is not well in emerging markets (see bottom chart).

Trade growth has been sluggish (global exports actually fell in May) and, while the effect is exaggerated by the dollar's strength (which recues the dollar value of local currency exports), it is still a problem for local manufacturers. China continues to cut prices at the factory gate,...Continue reading

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