Tim Fox

With oil prices dropping persistently below Saudi Arabia’s fiscal break-even level of about US$80 per barrel, it is clear that the room for spending by the government has declined substantially.

The Bank of Japan appears to have merely postponed a decision to ease monetary policy further into negative territory, while the European Central Bank went much further than many had originally thought it would.

With China and the oil price seemingly in a better place, the markets have enjoyed a few positive weeks.

Last week was the week in which sterling finally started to wake up to the possibility of Britain leaving the European Union, or Brexit.

In the euro zone, some are talking about the return of the 2011-12 'doom-loop' in which euro zone banks and sovereign states were negatively entwined.

Significant questions still remain about the outlook, even as some of January’s concerns appear to have abated.

Some Chinese economic indicators have undoubtedly been soft, but others too have shown that far from collapsing, the Chinese economy is actually achieving something of a soft landing.

This year is still expected to be a challenging one in the GCC, with low oil prices, uncertain geopolitics and higher US rates weighing on the macroeconomic outlook.

The markets are starting to expect some concrete easing steps to be taken by the European Central Bank as early as the council meeting on December 3.

It is still possible to construct a more favourable end to the year, with the key elements to watch being developments in China, the nascent recovery in risk assets and ultimately the US Federal Reserve.

The window of opportunity for the US Federal Reserve to act this year has now got smaller, leaving it dangerously exposed and boxed in should events turn even more difficult through the final quarter.

With the US economy clearly performing very well currently, the main obstacle to a rise in interest rates would appear to be the situation in financial markets.

The world has been waiting for the Fed to lift interest rates for too long now, with the consequence that many investment decisions have not been taken, or put on hold.

While the Greece crisis has resembled a slow motion train wreck playing out over a number of months, if not years, the collapse in Chinese equities has taken the markets much more by surprise.