Trump Call

Here is the Economic highlights on Wednesday 4th September:

Australia – GDP growth has caught analysts by surprise with a increase from 0.6% previous quarter to 2.6% last quarter, which was higher than expected.

India – Following an awful quarter for the country their currency has made gains of over 20% in recent weeks as the Government take measures to stem the outflow of money from the region. Raghuram Rajan a former IMF chief economist steps in a head of the Reserve Bank of India with a huge task on his hands as figures show the economy is growing at its slowest rate since 2009.

UK – The OECD have raised their forecast for the UK growth to 1.5% from 0.8% and seen alongside the CIPS (Chartered Institute of Purchasing and Supply) figures that have their highest results in 6 years, results in encouraging noises. The OECD stated that if this good news continued to emerge from the UK it indicated that the Bank of England may have to raise rates as soon as the 3rd Quarter 2016 to control the growth.

Further problems from the emerging markets and the Indian Rupee hit an all time low against the US dollar at 65.6. This prompted their government to annnouce a series of infrastructure projects totalling £17.7bn to try and boost the flagging economy, which is currently only growing at 5% per annum and seen a weakening.

Meanwhile Brazil faces similar woes but is using financial stimulus packages to try and stem the fall in value of their currency with up to $60bn put aside to pump into the markets. Considering the amount of infrastructure projects already ongoing in the country, with the World Cup AND Olympics, it is no surprise that the government has deemed fit to use financial tools. This has lead to calls that inflation could spiral out of control if kept unchecked.

Over the last 24 hours things have got rather nasty in Asia with

• Japan’s Nikkei 225 index falling by 2.6%;
• Hong Kong’s Hang Seng down by 2.2%;
• South Korea’s Kospi down by 1.6%;
• The Indonesian market down 4.9%

This on top of the continued fall of India’s Rupee against the US Dollar as money continue to flee the faltering economy, despite the Reserve Bank of Indias efforts to intervene. By the end of trade it had dropped to 64.13 against the US dollar, which is a new low and meaning the currency has lost over 15% of its value this quarter.

India’s woes are mirrored, but not on such a scale, across all the so called “emerging markets” as money flows to safe havens across the globe in atticipation of the US Fed ceasing its quantitive easing problem, which has flooded the global markets with cheap money.

The big news over the weekend was from the Far East, predominately from Japan and China and deeply contrasting data. With the Japanese Governments push on the economy and fiscal polices designed to drive growth the markets expected to see some improvement of 3.6% but they came in at 2.6%. This has cast doubts over the governments plans.

On the plus side China, whose economy many had been predicting would continue to falter produced better than expected factory outputs, 9.7% v the 8.9% analysts had been expecting. This has had an impact on those countries who rely on commodity exports.

Further west India’s government is stepping up its efforts to shore up the Rupee after it falling nearly 12% this year.

We have finally heard from the new governor Mark Carney on how he will run his ship during his tenure. The most important comment from his was that the bank would not consider raising interest rates until the unemployment figure fell below 7% (currently 7.8%) and that this meant adding 750,000 jobs and could take 3 years. This is good news for stability and takes away the monthly uncertainty about where rates are going and will have an impact on currency rates. He also confirm that he believe “a renewed recovery is now underway in the United Kingdom and it appears to be
broadening.” alhough not quite at “”escape velocity.”

In other news Australia cuts its rates yesterday by a quarter to 2.5% and many believe that another movement down to 2.25% is likely before the end of the year. This is in response to the government trying to rebalance the economy after the commodities boom of the past few years.

The Bank of England is expected to announce new procedures and targets, doing away with monthly rate setting and inflationary targets in favour of “Forward guidance.” This means the end to the current monthly rate settings and a new statement that will indicate to the market what interest rates will be over a longer period. This, they hope, will give more stability to the market rather than having the markets guessing one month to the next on which way rates will go. The new governor Mark Carney is also expected to announce an end to the current inflationary target, which in any case has exceeded this 2% every month since 2009 and results in the governor writing a letter to the exchequer explaining the reasons behind it.

Lower than expected job figures from the US casting a few doubts over the strength of their recovery meant that the dollar slipped in late trading. Although the July figures only missed by 20,000 the market took it negatively and the Dow slipped 0.02%

The Bank of England’s Monetary committee’s decision to keep base rates at 0.5% and quantitive easing at the same level helped Sterling regain some of the previous day’s loses. Further news that the State Owned Bank, Lloyds TSB Bank UK, has returned to profit gave further confidence to the strengthening UK economy.

Better than expected GDP figures from the US have had an impact on the USDGBP, down 0.5%, as the US economy grew 1.7% in the second quarter and the private sector took on another 200,000 jobs.

In the mean time in the Eurozone the IMF has warned that Greece is facing a €9.2bn Black hole in their finances although on the plus side unemployment fell for the first time in over two years across the currency zone.