Let’s take a look at two global economic updates or interesting key developments that happened last week that investors should take note of. First, we’ll look at the policy central banks around the world have been implementing to combat the slowing global growth. Next, we’ll move on to look at how the new Australian government plans to counter the decline in mining boom. Central Banks likely to maintain Loose Monetary Policy Asian stocks rose last week, with the regional equities gauge rebounding from the previous week’s decline of 1.5%, after weaker than forecast U.S. consumer confidence spurred bets that the…
Let’s take a look at two global economic updates or interesting key developments that happened last week that investors should take note of. First, we’ll look at the policy central banks around the world have been implementing to combat the slowing global growth. Next, we’ll move on to look at how the new Australian government plans to counter the decline in mining boom.
Central Banks likely to maintain Loose Monetary Policy
Asian stocks rose last week, with the regional equities gauge rebounding from the previous week’s decline of 1.5%, after weaker than forecast U.S. consumer confidence spurred bets that the Federal Reserve will maintain stimulus.
The MSCI Asia Pacific Index gained 0.7% to 142.36 in Tokyo and South Korea’s Kospi index added 0.1% after a Bank of Korea survey showed consumer sentiment at its highest level since May 2012. Singapore’s Strait Times Index (SGX: ^STI) also ended 0.3% higher during the week, giving up some of the gains on Friday.
In reaction to the weakening global growth, coupled with stagnant inflation and job growth, it seems like central banks around the developed world are increasingly likely to maintain a bias toward easing. The push for a loose monetary policy is the tendency to follow the US Federal Reserve’s likely extension of loose monetary policy. Emerging market economies such as Chile and Hungary have also cut rates recently.
On the other hand, the risks of continuous stimulus are started to surface with talk of unsustainable home-price increases in Europe and China and the MSCI World Index of developed-world stock markets is near its highest level since 2007.
Richard Gilhooly, an interest-rate strategist at TD Securities Inc., explains “Normal or not, that’s been the environment now for five years after monetary authorities fought to protect the world economy from deflation and to hasten its recovery.”
Despite knowing that the risks will be tagged to the formation of asset bubbles, the policy makers are planning to deal with them much later. For now, analysts have critiqued that the era of easy money is shaping up to keep going into 2014, led by weakening growth outlook in developing nations. A low interest rate environment is deemed positive for property developers like Sing Holdings (SGX: 5IC) and Fragrance group (SGX: F31).
Australia Budget Position languishes
Australia’s worsening budget position and poor performance in non-mining sectors have got Australia’s Liberal-National government worried, which just took power less than 2 months ago.
“The reality is that we are in challenging times”, Finance Minister Mathias Cormann said in a Sky News interview on Oct 26. The new government has inherited “not just a bad position at the time of the election but a position that continues to deteriorate,” he continued.
The coalition is pledging to cut red tape and lower taxes as a China-led mining investment boom has faltered. Prime Minister Tony Abbott’s government is grappling with rising unemployment and cooling growth as a strong currency hurts manufacturing and service industries.
In a bid to revive the non-resource industries, the Reserve Bank of Australia has been cutting the benchmark rate gradually to a record low of 2.5% and in turn, led to a 12% decline in the Australian dollar in the second quarter. The currency has since rebounded as the U.S. Federal Reserve unexpectedly delayed tapering bond purchases.
“There’s no doubt that investment in the mining industry is not at the same level that it has been in recent years,” Cormann said yesterday. “It is so important that we take action to reduce the cost of doing business in Australia, to make ourselves more competitive internationally, to improve productivity, so that the non-mining parts of the economy can start to grow and prosper again.”
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