Armada Global Trends Summary

Banks around the world are taking their cue from the U.S. Federal Reserve to stimulate economic growth through liquidity and easing interest rates. This, says Armada, will result in a stronger U.S. dollar. Where the U.S. dollar has been weaker giving U.S. businesses a competitive edge for U.S. exports, a stronger dollar will make exports more expensive. “A higher dollar also impacts the role of energy around the world,” says Armada. “US energy becomes more expensive to export, but we can import it a lot cheaper. That could eventually drive down the price of WTI and impact shale oil activity.”

Trend 2: India Manufacturing

The president of India, Narendra Modi, is working to improve the country’s manufacturing economy. Part of his strategy is to take business away from China. It is an opportune time to do so, says Armada, due to rising costs in China and dissatisfaction by China’s traditional trade partners. Modi also wants consumer to buy domestic goods in order to keep manufacturing business in India and create jobs. In order to be competitive, however, reform of India labor laws will be necessary to find fill the workforce with qualified personnel.

Trend 3: Europe, Sanctions and Natural Gas

Armada questions Europe’s ability to stick to sanctions imposed on Russia with the winter approaching and the subsequent increase in demand for natural gas. Europe has no immediate alternative for the 60 percent share of gas imported from Russia. Armada sees signs that Europe sanctions may be weakening.

Trend 4: Global Trade

Lackluster global trade continues to garner depressing forecasts. Armada lists five issues that are impacting trade. First is the slow global economic growth (1.8 percent in the first half of 2014) with decreased domestic demand. Second is the exceedingly slow recovery in Europe that has dragged even Germany down. Europe is almost a non-player in trade says Armada. Third is that emerging markets are now in retreat as they try to stay out of recession. Fourth is the decrease in U.S. demand for Latin American commodities other than Mexico. Lastly, is the uncertainty caused by geopolitical issues that include ISIS, Ukraine, Ebola, etc.

Trend 5: U.S. Taxation

The US has some of the highest corporate taxes in the world which has businesses searching for loopholes to save money. The tax inversion strategy, in which companies bought foreign rivals to reduce tax obligations, has been shut down by the U.S. government. The problem, says Armada, is that foreign companies buying U.S. companies are not under the same restrictions. Corporate taxation needs to be revised to keep U.S. businesses competitive.

Trend 6: Russian Sanctions

Sanctions against Russia have not had the detrimental market affect expected and has not deterred Russia’s goal of reasserting itself as a super power. Russian sanctions against other nations have had a stronger effect, most notably the ability to hold Europe hostage with restrictions of natural gas.

Trend 7: Oil Prices

Oil prices have been dropping as oil production surges in Mexico, Australia and parts of Europe and in the shale fields of the U.S. To quote Armada, “oil and petroleum prices play such a pivotal role in the global economy that any softening will help to bolster growth (as long as it doesn’t go to deep” and any surge in prices will generally slow it down.” Armada says that, in a year or more, there is a risk of oversupply and depressed prices and margins. US export of crude oil will help the situation at home as long as Congress acts quickly to keep prices propped up, says Armada.

Trend 8: Baltic Index

The Baltic Index is beginning to inch down from its high of 1300 in early September and the cause for the decrease is in question. Is there a clear drop in demand or is too much supply chasing demand? Maritime analysts have been worried about overcapacity but now the industry is facing tight capacity because of a shortage of officers to pilot ships. “Therefore,” says Armada, “if we are seeing a drop in the BDI as we are today—does that mean demand has just fallen off a cliff—especially if labor is short and capacity is tight as a result?” Also rumors have it that China is not doing as well as it reports, and if so, it could be downward pressure on the BDI.

Trend 9: Weak Environmental Concerns

No major hurricanes or tropical storms are threatening the world right now. The highest potential for economic impact is a volcanic eruption in Iceland that could potentially shut down European airspace.