The economic and political stage has been fresh with anticipation and controversy with decisions that affect the economic outlook everywhere. The bank of England has kept the interests rates steady, Axel Weber caught economic onlookers by surprise by the announcement that he will stand down as the Bundesbank president and President Mubarak Stepped down as president and handed power to the Egyptian army.
All in all, a mix of surprise and shock that have changed the playing field with reaching implications for the economies of Europe and the UK.
The fact that the BoE decided to leave the interest rates as they are will come as a relief to many people across the country as they continue to make lower payments on borrowed money and mortgages, however it does indicate that the UK is probably unable to deal with the consequences that would entail by raising them. If the interest rates were increased then the UK would have to deal with the strain on two fronts. Firstly there are the problems associated with those taking advantage of lower rate mortgages or those who are just about managing to keep up their payments at the lower rates suddenly finding themselves with extra outgoings and their disposable income shrinking. Secondly, higher interest rates could also affect the Pound making it stronger against foreign currencies and strain the export market.
Small businesses seem to be the focus of the government with the lending targets given to the banks, increasing credit to stimulate the economy and there are a growing number of small enterprises that are finding avenues in exporting to the new arising hunger from India and China. Should they find themselves fighting against a stronger pound then this could dent the profit margins of these vulnerable enterprises.
However we are still facing the problem of inflation. The stronger the need for consumption by growing economies from the east for raw materials, the more the supply and demand imbalance keeps prices high which are then passed on to consumers everywhere. This is an issue that can not be beaten with interest rate flexibility, at least not alone.
Weber, had he been successful in succeeding Trichet, would probably have pushed for tough stances on inflation and would have mostly likely hiked up the interest rate across Europe in an effort to keep inflation from getting out of control. Weber was known for having a tough hawkish stance on inflation across the EU and whoever comes into the limelight now for the role will certainly be scrutinised on their views and policy in dealing with inflation versus growth. An increase in the European interest rate may have helped the UK with exporting goods and services across the region but would not have dealt with global factors influencing price.
Mubarak's decision to step down as president, while widely celebrated, has implications in Egypt's crucial role in determining stability in the region.
The most pressing matter is the affect that the situation has on the price of oil and energy; The price of oil depends on a number of factors including transportation costs which will escalate if the Suez canal route and the pipeline that Egypt controls is effected by these events and also by supply factors if other countries get caught up in the turmoil and production is effected. The UK is already facing energy and petrol price rises which are affecting the economy to its core, adding to the squeeze felt by UK consumers.
The second issue is how investors react when the stock market opens again and the fear is that there will be a flood of withdrawals from the markets which will add to the countries already increasing dire economic situation. Mubarak handing over power is not a prerequisite for autonomous transition to democratic civilian rule and hence stabilization of the country from its citizen's revolt.
The stock market is affected by investor's confidence which is not likely to change over the weekend as the Egyptian economy has been badly hurt by the protests and will take a while to recover.
In the west, major index's including the FTSE 100, S&P 500 and NSADAQ rallied in the last hours of trading on Friday once Murabak's decision broke the news. The S&P 500 and NASDAQ pushed to new highs with the FTSE reaching past the 6060 mark.
Technically speaking, if the FTSE 100 can find support at this level with enough bulls to support the price at this level, then the FTSE 100 may enter a mini consolidation period with enough support to keep the FSTE up at this level. This could mean that the first sign of stabilisation could instil confidence see the FTSE push through to new highs over and above 6071 and start reaching for 6200.
However, the more likely case will see withdrawals across the board, putting money into safe havens while investors determine the events of the coming weekend wait out the unknown variables ensuing the beginning of next week. In which case 5947 and 5824 are likely key levels with which buyers could be seen entering the markets again.
Although there is likely to be volatility over the next several days in both the markets and news reports as a whole, the issue remains the same; inflation bought on by macro economic factors which cannot be tackled by micro economic tools. What happens now in Egypt will be crucial as the most important aspect is stability for the country and region which will have positive effects on the rest of the global economy.
The demand surge for raw materials will continue to affect supply and demand; however these economies will provide increasing opportunities in exporting good and services. The BoE so far is keeping a steady hand and resisting jumping the gun in response to inflation; instead tackling the issues by encouraging economic growth. If the UK and Europe can adapt further and take advantage of the opportunities presented by these world events, then there could opportunities in job growth in new avenues enabling growth in the economy as a whole.