Recent data probably won't sway ECB monetary policy.
The latest data
on euro area GDP growth came in at +0.3 percent during the fourth quarter of 2015 compared to the same period of the year before and at +1.6 percent on a yearly basis.
That will not change ECB’s President Mario Draghi's single-minded pursuit of adding more accommodation. But the ECB is coming nearer to running out of options, which work, when we look at the Central Bank’s balance sheet compared to the PCI data
In the meantime, market rationality still seems to be in relative short supply with concerns about Chinese trade data
still lingering in the Asian trading session overnight with only the Australian main index ending in the green for the day.
This comes in spite of the myriad problems associated with Chinese trade data, which are:
- the data are “nominal” and not “real” so that currency and commodity moves still play a role;
- the data were distorted by the Chinese lunar New Year;
- and the data do not appear especially consistent with say the story coming out of countries like Australia, which leaves even the most insightful of economists largely ignorant about the true state of affairs in terms of China’s trade patterns enough of as little than no insight about what is happening in the wider global economy at the moment.
Investors could do well taking notice of this specific situation and maybe should try to put their faith in as broad a range of economic numbers as is possible and try not to react to single data releases, especially single data releases of dubious quality.
In Europe there has been again some noteworthy movement around the ever vexed issue of Greece. German Finance Minister Wolfgang Schaeuble declared
that he really couldn’t justify further debt relief for Greece
Investors could do well paying attention to the fact that Greece is at an inflection point in terms both of its growth and its negotiations about debt restructuring notwithstanding the market is not as certain as the German finance minister is about the lack of any need of restructuring in the future, but as we all know “markets” don’t vote in the German parliament.
Anyway, trouble caused by Greece can, once again, not be excluded over the short to median term which means an amber blinking light for investors.
In the U.S. we got more votes, but although there was a surprise defeat for Hillary Clinton there is nothing that is likely to change the status-quo of the candidates for the two parties and there is nothing likely to influence financial markets directly so far.
The only thing that could be of interest is that the Democrat Bernie Sanders’ campaign in Michigan, which he won in defiance of opinion polls, focused heavily on the issue of free trade and job losses.
Free trade has receded as a political issue in the United Sates after the net economic benefits of the North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States and that came into force on January 1, 1994, became more obvious over the years.
The fact that this issue resonated so strongly with an admittedly specific electorate though does raise questions about the future support for:
- The Trans-Pacific Partnership (TPP) trade agreement among twelve Pacific Rim countries that was signed only a month ago and the “proposed” Transatlantic Trade
- and the Investment Partnership (TTIP) trade agreement between the European Union and the United States.
Interestingly, IMF First Deputy Managing Director David Lipton just warned that the global economy is clearly at a delicate juncture and that now is the time to decisively support economic activity and put the global economy on a sounder footing. He also noted that among the “most disconcerting” signs of trouble in the world economy are “a sharp retrenchment in global capital and trade flows.”
: “The IMF’s latest reading of the global economy shows once again a weakening baseline.”
So, we can expect another downgrade in IMF’s next World Economic Outlook (WEO) due out in April. In simple words, long-term investors should not expect better times anytime soon.
Etienne "Hans" Parisis
is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.
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