Well it looks like Central bankers and policy-makers have done it now! They have painted themselves into a stagflationary environment and I’m not sure they know how to get out of it. As I mentioned yesterday, the UK is dealing with many “flations”, and stagflation appears to be just around the bend.
Earlier this morning, the BOE rate policy meeting minutes came out and showed that there was no change in sentiment regarding whether or not to raise rates to combat rising inflation. The argument centers around slowing GDP growth and rising unemployment and how inflation affects the economy.
What they are not getting in the UK, and more appropriately here in the US, is that the threat of inflation is not causing people to run out and buy things they might want now for fear that prices are going higher later, but rather people are choosing to go without. This is a recipe for disaster that will start the slow death-spiral of stagflation that will suck the life out of the global economy.
It looks like the folks in Australia are starting to get it. Why wouldn’t they? They only have one of the strongest free-market economies in the world, yet consumer confidence came in at the lowest levels since 2010.
Last night in New Zealand, PPI data for inputs and outputs came in hotter than expected, showing that the rate reduction the RBNZ made to jump-start the economy after their 2nd earthquake may have done its intended job so it may be short-lived.
The minutes from the FOMC meeting are due out later today but don’t expect anything new or exciting. What I would like to see is these meetings being conducted with EVERYONE wearing lie-detection equipment! Talk about great reality TV!
Lastly, GDP figures from Japan are due out tonight and are expected to show declines. Tomorrow’s rate decision could produce some further monetary easing—at least the market is hoping so—and it will be interesting to see if the re-building efforts start to add to GDP figures going forward.
So this morning is starting out as a bit of mixed bag, with stocks higher in Asia but flat to lower here in the US, commodities are higher, yet there is some notable Dollar and Yen strength.
In the forex market:
Aussie (AUD): The Aussie is lower across the board after consumer confidence figures declined to the lowest level since 2010. The sentiment index fell 1.3% from the previous month.
Kiwi (NZD): The Kiwi is mostly higher as PPI figures came in higher than expected last night, showing a gain of 2.2% for input prices and a gain of 1.7% for outputs. This may mean that the recent rate cuts the RBNZ enacted to combat the fallout from their earthquakes could be short-lived, with a return to normalized policy happening soon. (Click chart to enlarge)
Loonie (CAD): The Loonie is mostly lower despite higher oil prices and that leading indicators came in better than expected, showing a gain of .8% vs. an expectation of .6%.
Euro (EUR): The Euro is mostly lower as the immediate future of the IMF is in question thanks to the imprisonment of its current leader. Europe is fighting to maintain its leadership of the organization, and the politics behind it may make things harder to deal with the current debt crisis.
Pound (GBP): The Pound is getting pounded as higher than expected jobless claims came in this morning and are somewhat supportive of the BOE view that they shouldn’t raise interest rates as the economy transitions from government support to private sector growth. Whether or not this is the right thought process remains to be seen. (Click chart to enlarge)
Dollar (USD): The Dollar is mostly stronger this morning as there is currency risk aversion in the market, though it hasn’t carried over to stocks and commodities—yet. The FOMC meeting minutes are unlikely to produce anything new, so it will be interesting to see if we revert to the mean today.
Yen (JPY): The Yen is higher across the board despite higher stocks in Asia as tonight’s GDP could surprise. While the economy is expected to contract .5% for the quarter, GDP could accelerate as the rebuilding process takes place or if the BOJ becomes more accommodative with monetary policy.
Current global economic policy and the “wait and see” approach to the marketplace are not going to get it done. We are running out of time as confidence erodes in the overall lack of solutions coming from the powers that be.
Excessively low interest rates may be keeping the economy afloat right now—but this lifeboat is not going to be able to hold everyone. Unless we come up with some other lifeboats (solutions to economic malaise), we’re going to have to start tossing the bloated overboard and making the hard choices no one wants to make.
Sooner or later, we are going to have to find out who is fit enough to swim on their own and who is going to sink to the bottom. But taking down the entire boat to save a few is wrong on so many levels.
So remember to keep your eye on who is the fittest, and place your bets that they will survive over the fat and bloated!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
none
