Week in review: Crisis upon crisis

In this section, we cover the 10 most important events of the week, focusing on the big stories in the markets, in business and in the world of politics. This week, we saw crises dominate the headlines; a venerable company was put into disrepute, emerging markets appear to be staring into the abyss and the dilemma about what to do with European migrants only intensified.

1. Hell breaks loose for Volkswagen:  The German car giant this week admitted to installing software in an estimated 11 million vehicles that allowed to them to cheat emissions tests. The sinister motive is evident; having bypassed the checks, the engines allegedly produce nitrogen oxide pollutants 40 times above the permitted US level. Volkswagen has subsequently fallen turmoil, with their stock falling ⅓ in the first four days after news scandal broke, their CEO Martin Winterkorn resigning and investigations from authorities across the worldwide being launched.

2. Greek Voters re-elect Syriza: Alexis Tspiras won a ‘victory of the people’ in Greece as 35% of the electorate voted to return Syriza to power. However, despite gaining an extra 50 seats for gaining the most votes, the radical left party was still short of an overall majority, prompting them to once again enter coalition with the nationalist Independent Greeks. Nonetheless, with voter turnout sinking to a historic low of below 60%, it signals discontent  with the former anti-austerity upstart, now a pro-bailout ally of Brussels, as the country continues to head to ruin.

3. Yet more monetary easing!: The world of low-interest rates is here to stay it seems as both Norway and Taiwan saw interest rate cuts this week. The Nordish central bank Norges Bank cut their overnight deposit rate to a record low of 0.75%, citing the effects of falling oil prices on the oil-dependent economy; it has sapped growth to a snail’s-pace at 0.2% and has driven unemployment to its highest level since 2006 by pushing oil companies to cut workers. Meanwhile, the Taiwanese central bank cut its policy rate for the first time since the global financial crisis to 1.75% but here the explanation is different; facing declining competitiveness in the wake of the yuan devaluation, the central bank cut its rate to support its weakened exports and growth.

4. And more unconventional monetary policy?: Meanwhile, in the UK, the Bank of England’s chief economist Andy Haldane proposed the scrapping of cash and a transition to a digital alternative. As unorthodox as it seems, it is his way of tackling the zero lower bound and paving the way for negative interest rates; with the abolition of cash, if the central bank charged a negative nominal interest rate, people could no longer convert their deposits into cash to escape the nominal losses on their deposits and it would thus successfully stimulate spending. As all new innovations do, the idea has been subject to fierce criticism.

Bank notes

5. On the other side of the world however…: Despite sending out a dovish message to the world with a hold on interest rates last week, the Fed’s chairwoman Janet Yellen appeared to change her tone as she claimed that ‘it will likely be appropriate to raise the target range for the federal funds rate sometime later this year’. The speech, along with an upward revision to the US growth rate for Q2 2015 to 3.9% on an annualised basis, caused markets to rally towards the end of the week.

6. Emerging currencies collapse: Concerns about Chinese growth and uncertainty about U.S. rate hikes have appeared to hit the emerging market currencies hard. In the wake of Wednesday’s news that activity in China’s factory sector shrank to a near 7 year low in September and Thursday’s aforementioned Yellen speech, the South African rand and the Mexican peso hit record-lows. Sparking fears about what is to come, the Malaysian ringgit and Indonesian rupiah fell to their lowest levels since the 1998 emerging markets crisis. Worst of all, the Brazilian real continued its slide and having lost 60% of its value since the start of the year, the Brazilian central bank stated its willingness to use its foreign exchange reserves to defend the currency.

7. Urgency over the European Migrant Crisis: With over 500,000 migrants being estimated to have arrived in Europe this year already, the European migrant crisis is quickly escalating so the resettlement plan to relocate 120,000 of the refugees across the European Union, approved by a majority of EU ministers this week, was well-needed. Nonetheless, such a plan has attracted controversy as the smaller Eastern European nations have been overruled in the matter and are protesting at these ‘diktats’ from the Europe’s command. Most notably, Hungary’s prime minister Viktor Orban accused Germany of ‘moral imperialism’ and of trying to ‘impose its will on other countries’. Nonetheless, the plan is being pushed ahead as 66,000 of the refugees in Italy and Greece will soon be resettled across Europe.

Europe’s refugee and migrant crisis

8. Disaster strikes hajj pilgrims: In the worst-ever tragedy to occur during the annual Muslim pilgrimage, a stampede killed 769 people in Saudi Arabia in Thursday. There has been plenty of finger-pointing as Iran’s President Hassan Rouhani called for an investigation into the incident at the UN whilst Saudi authorities have accused the pilgrims of failing to follow instructions.

9. Osborne buddying up with the Chinese: Despite more and more evidence that the Chinese economy is slowing, the British Chancellor of the Exchequer spent this week in China trying to drum up business for the UK. His most notable achievement was a guarantee for up to £2 billion of Chinese investment in the controversial construction of Hinkley Point C, Britain’s first new nuclear plant in the UK for 20 years that will provide up to 7% of the UK’s electricity needs once operational. A perhaps less desirable feat was being credited as ‘the first Western official in recent years … [to ignore] the human-rights issue’ by the Global Times, a Chinese state-run newspaper. Congrats Mr Osborne.

martinrowson260915

10. “The most hated man in America”: Martin Shkreli, CEO of Turing Pharmaceuticals, made headlines this week for being a ‘morally bankrupt sociopath’; having recently acquired the rights to Daraprim, a drug often given to cancer and Aids patients to tackle a rare parasitic infection,  he raised the price of the drug by over 5000% fom $13.50 to $750 per pill. This blatant move of price-gouging attracted widespread criticism and even prompted the US Democrat presidential candidate Hilary Clinton to intervene by tweeting that she would bring down drug prices if elected. Despite being unapologetic at first for taking advantage of the medically vulnerable, he later backed down by promising to reduce the price of Daraprim down to a more “affordable level”.

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