Ominous Global Growth Warnings

Weekly Report - 13/04/2015

The backdrop of the global economy continues to paint a picture of sluggish growth as Central Bankers pursue the lower bounds of loose monetary policy with unconventional measures aimed at spurring output. Current policies were left unchanged by major central banks including the Bank of Japan, Reserve Bank of Australia, and the Bank of England which left interest rates on hold.

Last Week in Brief

IMF Managing Director Christine Lagarde had stern words for policymakers last Thursday, warning that without increased accommodation the global recovery might be at risk as low interest rates fuel asset bubbles across the globe. Her comments were somewhat conflicting as she called for looser monetary policies which have invariably stoked the asset bubbles that are discomforting to the outlook. Aside from Lagarde’s comments, the main driver of momentum in the prior week was the FOMC Meeting Minutes, further confirming the discord that exists between Federal Reserve members. The differing perspectives of voting members are making it increasingly difficult to project the path of interest rate hikes as investors seek to nail down a definitive timeline. The dollar gained during the second half of week, making great strides against major peers while commodities rose modestly in spite of renewed dollar strength. The Bank of Japan, Reserve Bank of Australia, and Bank of England confirmed the wait-and-see mentality prevailing amongst Central Banks of developed economies, opting to leave policies unchanged in a reflection of the growing uncertainty in the outlook.


Week Ahead

Markets will be highly sensitive in the week ahead to further interest decisions, the first coming from the European Central Bank followed by the Bank of Canada. Both banks are expected to keep interest rate policy on hold at 0.05% and 0.75% respectively despite growing headwinds to the outlook. Of no less importance is CPI data due from around the globe, starting in the UK and covering the Euro Area, United States, and Canada later in the week. All figures are expected to show CPI growth near an annualized pace of 0.00% with the UK expected to show zero growth, the Euro Area forecast to experience deflation, and the US figure to grow just barely. The one notable outperformer will be Canada with expectations for CPI to expand at a pace of 1.00%. Lastly, China will be releasing the latest GDP data, with forecasts expecting a deceleration in growth, confirming the Central Governments lowered estimates for 2015 economic expansion. Despite the solid gains in regional benchmarks like the Shanghai Composite and Hang Seng, fundamental data is pointing to prolonged below-trend growth in China.


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