Greenspan Warns on Economy: "We’re In Trouble"

Daily Analysis - 02/03/2016

Former Federal Reserve Chairman Cautions on Monetary Policy

Famed economist and former head of the United States Federal Reserve Alan Greenspan reminded markets of the risks ahead for the global economy amidst highly accommodative policy and the proverbial race to the bottom in the ongoing currency devaluation battle. His comments come during rising concerns about the pace of business investment and lack of productivity.

Greenspan Warns "We’re In Trouble"

According to former Federal Reserve Chair Alan Greenspan, the current monetary policy environment carries numerous risks and is “counterproductive” when it comes to restoring the global economy. He stated his opinion that negative interest would lead to "misuse of capital." One of the fundamental problems of accommodative policies that Greenspan mentioned is the lack of business investment which is also a reflection of caution on the part of businesses concerned about the outlook. His comments directed specifically toward the US economy underlined the dangers of entitlement spending and how it is shifting investment sentiment and further devastating productivity as private capital remains on the sidelines awaiting greater clarity on the future of policy. This comes amid the rebound in Fed Funds futures to back above 50%, implying a stronger probability of at least one additional rate hike before the end of 2016.

API Crude Inventories Soar

After a strong reading in the prior week that saw both the API and EIA oil inventory readings rise well above expectations, figures released by the American Petroleum Institute overnight showed stockpiles rising by the most since January 26^th. Crude oil in storage rose by 9.9 million barrels according to the trade group, beating consensus expectations of 2.500 million barrels by a wide margin. This comes on the heels of resurgent concerns about the pace of inventory builds at the Cushing storage facility which is nearing operational capacity. Adding to problematic oversupply conditions was the recent revelation from the Iranians on February production which rose by 500,000 barrels per day with expectations that production will return to 3.9 million barrels per day in August. Both the WTI and Brent crude oil benchmarks fell on the inventory figures, sending the blends lower before rebounding modestly overnight.

Aussie Growth Tapers

Fourth quarter GDP numbers announced by the Australian Bureau of Statistics overnight showed a stronger than anticipated figure with growth printing at 0.60% compared to estimates 0.40%. Although well below the third quarter figures which were upwardly revised to 1.10%, policymakers will be forced to focus on stimulating business investment and the export economy in the coming quarters to see output expansion accelerate. According to the latest report, the primary driver of GDP growth in the latest reading was private consumption expenditures which rose by 0.70%. However, the -1.90% decline in private investment combined with the contracting manufacturing sector continued to drag on output despite the fact that the economy grew at a healthy 3.00% annualized pace, beating expectations of 2.50% handedly. The Australian Dollar surged on the GDP publication, with AUDUSD rising as high as 0.7244 before pulling back modestly.

Swiss 4 Qtr GDP Rose by 0.4%

Gross domestic product in the alpine nation saw a pickup in the fourth quarter according to the latest figures from the Swiss Federal Statistical Office, printing at 0.40% expansion during the quarter compared to estimates of 0.20%. This marks a substantial turnaround compared to the prior quarter which saw total output shrink by -0.10%. While the potential for a stronger Franc over the medium-term has hurt expectations to a degree, trade managed to show better progress than anticipated with exports rising by 2.90% in the last three months of the year compared to the 0.50% rise registered during the third quarter. The primary drivers behind the increase were stronger private consumption and rising government expenditures. Nevertheless, annualized growth fell to 0.90% in contrast to the 1.90% reported in 2014 as global trade continued to weaken and major trading partners saw conditions worsen.