According to the Brookings Institute global growth is close to stalling, with falling manufacturing indices in major economies as well as declining business confidence. The IMF will published updated forecasts for 2016 tomorrow, it’s probably going to make for depressing reading. Couple that with a new thesis which argues that the boost to consumer disposable income from lower energy prices will be less than previously anticipated (this is because in the past with global inflation and interest rates higher lower energy prices gave central banks leeway to cut interest rates, but that’s not possible at the zero bound), there are certainly areas for concern. And now we have Larry Fink, the CEO of Blackrock the world’s largest asset manager, warning that negative interest rates are likely to hurt consumer spending, the news gets even worse. What we are experiencing now is a real life lesson in what negative rates actually do, as opposed to the theorising by economists. Reality and theory as is often the case are somewhat different. In this case, Larry Fink points out that savings are eroded by negative interest rates, and rather than encouraging consumers to spend money it raises their fears that their savings will not be enough for their retirement and thus they find more ways to cut expenditure. It’s a valid point, and one wonders why the big brains at the major central bank didn’t consider this aspect of negative interest rate policy.
Not much on the data front today, but there does appear to be some excitement in the markets. GBP/USD has jumped strongly in the last hour, most likely due to traders exiting short positions, I imagine others will come in to sell cable later on this morning, so I’m not expecting this bounce to last that long.
Elsewhere we are looking at more of the same with the dollar likely to be weaker against the NIRP currencies (JPY and EUR).
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