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NICOLE SINCLAIR: As US macro data points improve,
the single biggest threat to the stock market rally
here remains the rest of the world.
Deutsche Bank's chief international economist,
Torsten Slok, joins me to lay out the risks.
Welcome, Torsten.
TORSTEN SLOK: Thank you.
NICOLE SINCLAIR: It seems that we are looking, especially
this week, to more signs that the rest of the world
is going to be stimulating the economy,
especially Europe, the ECB meeting on Thursday.
To what degree are we reliant on that
boosting in the rest of the world here in the US?
TORSTEN SLOK: Yeah, that's very important,
because a critical story for the stock market
and also for the economy and for the Federal Reserve for quite
some time has been that the US is good
and the rest of the world is not so good.
So the rest of the world is doing
what they can to try to help their economies,
in particular with the ECB coming potentially
with more later this week.
But also in the Chinese case, we've
also seen more stimulus done to try
to support the Chinese economy.
NICOLE SINCLAIR: On that divergence,
we got some bad PMI data out of Europe last week.
But we got some good German data this morning.
To what degree does that pose a risk
that the ECB won't stimulate the economy to the degree
that many investors expect it to?
TORSTEN SLOK: Yeah, it's true that the general picture has
been that inflation is the main target for the ECB,
and inflation has, unfortunately,
in European been on a downward trend for quite some time now.
The issue, then, becomes the broader picture for Europe
is that they have more mixed indicators, with Germany now
doing-- in particular indicators we got,
as you say, today-- doing better.
But generally speaking, the outlook still for Europe
is unfortunately for weak growth for quite some time.
NICOLE SINCLAIR: Let's talk about China.
When we think about what their government is trying
to do to stimulate the economy, you're
seeing more signs that they're doing more, correct?
TORSTEN SLOK: Yeah, absolutely.
The government in China is spending a lot more money
and has been spending more money recently
in an attempt to try to help the economy along.
They have a very important party congress
going on at the moment.
We've got some very important news the last few days
and expect also more news to come out the next few days.
And what they're basically trying to do
is to make sure that they do not get a hard landing.
This is extremely important, obviously
not only for China, but also for emerging markets that
export commodities to China.
And ultimately it's also very important
for the earnings of US companies and therefore for the US stock
market also.
NICOLE SINCLAIR: What other tools do they have?
Is there a worry that depreciating the currency
would be a tool that they would use,
and what impact could that have?
TORSTEN SLOK: There's been a lot of fears about that,
and it's pretty clear if you look at the bigger
picture for China that wages have
gone up quite significantly in China over the last 10, 15
years, roughly around 10% every year,
whereas wages for example in the US,
and in most other OECD countries,
have been relatively stable or not growing much too much.
And that erosion of competitiveness for China
does suggest that it would be a good idea for China
to depreciate the exchange rate.
And I think that's why they're slowly
depreciating the exchange rate.
But the problem is that you cannot do that overnight,
say 20, 30%, because that would involve significant
repercussions, not only in the Chinese economy,
but also for, again, the rest of the world,
and most importantly also for US companies.
NICOLE SINCLAIR: So to sum it up for you,
if the US data is strong, what is that biggest risk
for our markets to continue an upward trend
for the remainder of the year?
TORSTEN SLOK: I would say that the biggest risk is what's
happening in the rest of the world,
because it has been a big fear among many investors
that I talk to-- what will the slowdown in the rest
of the world mean for the US?
And I think that's why US growth has not been spectacular.
It's just been slowly chugging along.
And I think that is also the picture
we should expect going forward, that the rest of the world
will continue to be weak for a while longer.
But the US will continue to hold up and be the place where
you have relatively solid growth compared to what's
going on around the globe.
NICOLE SINCLAIR: Well, we'll be paying attention, especially
that ECB meeting on Thursday.
Thanks, Torsten.
TORSTEN SLOK: Thanks for having me.
NICOLE SINCLAIR: All right, that's
Torsten Slok of Deutsch Bank Securities.
So what's your take on international risks?
Let us know in the space below or on the Yahoo Finance
Facebook page.
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