The markets had a funny week. First everyone thought Britain was going to bomb Syria.
Brent crude duly hit $117 a barrel on Wednesday, triggering a rise in the price of the oil majors.
This lifted the FTSE 100 out of the doldrums it has been in as a result of fears over the US Federal Reserve scaling back bond purchases. Then Parliament came to its senses. Oil prices duly dipped.
One might have expected the Footsie to follow suit. But news that Vodafone might be selling its 45 per cent share in Verizon for a cool £84 billion or so sent the share price into orbit. Result: the FTSE broadly kept its gains.
All this indicates that late summer markets are very skittish. And for good reason: the global economy is on the cusp of a major recalibration. While the US economic recovery gathers pace and Europe comes out of intensive case, there is mounting concern in China and other emerging markets over the likely negative impact resulting from winding down America’s stimulus program.
If next week’s G20 summit in St Petersburg manages this phase change, all will be well. Otherwise market nerves will turn into a nervous breakdown. China spent the week defining what it wants from the G20. Two economic heavyweights, vice-minister Zhu Guangyao and deputy governor of the central bank, Yi Gang, warned the US Fed must consider the rest of the world when it decides how fast to taper bond purchases. Withdraw the stimulus too quickly and it will trigger a capital flight from the emerging world as Western interest rates rise – destabilising currencies and investor markets all round.
Instead, the Chinese want the Americans to compensate for any financial tapering by introducing a major domestic infrastructure construction programme – not a bad idea given the chronic state of America’s roads. The Chinese also anticipate the potential for investing their surplus cash in such a building programme.
As a quid pro quo, the Chinese are hinting that this year’s Communist Party plenum will push forward with structural reforms aimed at making China a genuine consumer economy rather than one reliant on cheap exports and unsustainable booms.
Of course, the G20 might be deflected into discussing the crisis in Syria. But deep down in the briefing papers a new economic agenda is emerging.
Interesting times ahead for cash-rich Vodafone
What next for Vodafone if it sells its lucrative stake in Verizon?
True, the instant cash return is mouth-watering. But quitting America will leave Vodafone with its operations concentrated in sluggish Europe and cooling emerging markets such as India. The commercial result is a mix of low-growth but cash-rich operations in Europe and (at best) high-growth but low-cash generating operations in the emerging economies.
Vodafone’s cerebral Italian chief executive Vittorio Colao has a plan. He is looking for new value and growth in fixed-line broadband allied with television content. Witness his recent acquisition of Kabel Deutschland.
Merging wireless and fixed-line operations has the advantage of discouraging fickle mobile customers from switching service providers. But as BT is discovering, mainstream television content providers such as Sky are not willing to give ground gracefully.
That could leave a cash-rich Vodafone open to predators. One name being mentioned is AT&T, a US telephone company keen to expand. Colao’s phone could soon be ringing.