Despite what you might think, risk markets are in a sweet spot

Here's three reasons not to worry.

The next six months could well be easy going for equity markets, and even the more exotic markets, like emerging market bonds, which suffered when the story first broke about ‘tapering’: a possible reduction in the US Fed’s Quantitative Easing programme. Let’s consider this and the other oft-perceived threats to the markets.

QE. Yes, QE may be tapered, but only probably, not definitely, as Bernanke was at pains to emphasise in the Q & A session following his recent speech at a National Bureau of Economic Research conference. It all depends on the data, and he assured us they are actually also worried that inflation may be too low. I think we’ve seen the bulk of the rally in US Treasury yields for now. For the next few months, I think the stock markets can live with this scenario - if data’s weak, QE will go on longer, if data's strong, then companies are going to be more profitable. Taper-shock is rapidly fading.

China. I definitely do not fall into the camp that believes China is a powder-keg waiting to explode, leading to global financial and economic Armageddon. Banking systems rely on confidence. Confidence in the unlimited supply of funding, confidence that borrowers, public and private, are solvent and able to repay, confidence that collateral values, e.g. house prices, will only ever rise.

Now, institutional over-indebtedness may well have become endemic in China, but certainly not amongst individuals, and the whole pack of cards is, as ever, dependent on the same ‘confidence trick’. Although China’s sensible determination to rebalance its economy away from investment-lead growth and towards consumption is no doubt weighing down on headline GDP, in the Chinese tradition the measures will be introduced gradually and pragmatically, as evidenced this week by senior leaders’ comments. Whilst Vice Premier Zhang Gaoli said that the government would "expand domestic demand", he also assured us they would "try every method to provide funding to support SMEs, exporters, and technology firms". Premier Li Keqiang was quoted as saying that the government would "prevent economic growth from slipping below the lower bound".

With $3.3tn in foreign exchange reserves alone, which it could quietly use to rescue the banks - I suspect we’d never even know a banking crisis had happened.

The Eurozone. Portugal, Greece, Cyprus, even France, surely we face a summer of cataclysmic popular discontent on the streets? Nope. The lesson of the Eurozone crisis is the Germans and the ECB will ride to the rescue-sure, there’ll be a to and fro over austerity measures, wrestling with the balance between creation of moral hazard in the South and ensuring the Euro’s survival, but I believe the nexus of self-interests implies we have reached a state of equilibrium. This is admittedly an inherently unstable equilibrium because of the absence of a fiscal union but, once Merkel has won her election that, and its sister, banking union, will be front and centre and suddenly on the cards. Right now she can’t say so, because of the election, but she knows the Euro won’t survive another five years without them. 

Federal Reserve Board Chairman Ben Bernanke speaking at a new conference in June 2013. Photograph: Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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The government has admitted it can curb drugs without criminalising users

Under the Psychoactive Substances Act it will not be a criminal offence for someone to possess for their own consumption recreational drugs too dangerous to be legally sold to the public.

From Thursday, it may be illegal for churches to use incense. They should be safe from prosecution though, because, as the policing minister was forced to clarify, the mind-altering effects of holy smells aren’t the intended target of the Psychoactive Substances Act, which comes into force this week.

Incense-wafters aren’t the only ones wondering whether they will be criminalised by the Act. Its loose definition of psychoactive substances has been ridiculed for apparently banning, among other things, flowers, perfume and vaping.

Anyone writing about drugs can save time by creating a shortcut to insert the words “the government has ignored its advisors” and this Act was no exception. The advisory council repeatedly warned the government that its definition would both ban things that it didn’t mean to prohibit and could, at the same time, be unenforcable. You can guess how much difference these interventions made.

But, bad though the definition is – not a small problem when the entire law rests on it – the Act is actually much better than is usually admitted.

Under the law, it will not be a criminal offence for someone to possess, for their own consumption, recreational drugs that are considered too dangerous to be legally sold to the public.

That sounds like a mess, and it is. But it’s a mess that many reformers have long advocated for other drugs. Portugal decriminalised drug possession in 2001 while keeping supply illegal, and its approach is well-regarded by reformers, including the Liberal Democrats, who pledged to adopt this model in their last manifesto.

This fudge is the best option out of what was politically possible for dealing with what, until this week, were called legal highs.

Before the Act, high-street shops were free to display new drugs in their windows. With 335 head shops in the UK, the drugs were visible in everyday places – giving the impression that they couldn’t be that dangerous. As far as the data can be trusted, it’s likely that dozens of people are now dying each year after taking the drugs.

Since legal highs were being openly sold and people were thought to be dying from them, it was obvious that the government would have to act. Until it did, every death would be blamed on its inaction, even if the death rate for users of some newly banned drugs may be lower than it is for those who take part in still-legal activities like football. The only question was what the government would do.

The most exciting option would have been for it to incentivise manufacturers to come up with mind-altering drugs that are safe to take. New Zealand is allowing drug makers to run trials of psychoactive drugs, which could eventually – if proved safe enough – be sold legally. One day, this might change the world of drug-taking, but this kind of excitement was never going to appeal to Theresa May’s Home Office.

What was far more plausible was that the government would decide to treat new drugs like old ones. Just as anyone caught with cocaine or ecstasy faces a criminal record, so users of new drugs could have been hit with the same. This was how legal highs have been treated up until now when one was considered serious enough to require a ban.

But instead, the government has recognised that its aim – getting new drugs out of high-street shop windows so they don’t seem so normal – didn’t depend on criminalising users. A similar law in Ireland achieved precisely this. To its credit, the government realised it would be disproportionate to make it a criminal offence to possess the now-illegal highs.

The reality of the law will look chaotic. Users will still be able to buy new drugs online – which could open them to prosecution for import – and the law will do nothing to make drugs any safer. Some users might now be exposed to dealers who also want to sell them more dangerous other drugs. There will be few prosecutions and some head shop owners might try to pick holes in the law: the government seems to have recognised that it needed a better definition to have any chance of making the law stick.

But, most importantly for those of us who think the UK’s drug laws should be better at reducing the damage drugs cause, the government, for the first time, has decided that a class of recreational drugs are too dangerous to be sold but that it shouldn’t be a crime to possess them. The pressure on the government to act on legal highs has been relieved, without ordinary users being criminalised. For all the problems with the new law, it’s a step in the right direction.

Leo Barasi is a former Head of Communications at the UK Drug Policy Commission. He writes in a personal capacity