A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The venerable Economist site is arguing that global central banks have already spent their recession-fighting ammunition and have little left in the monetary policy toolbox to fight the next economic slowdown. The timing is a bit unfortunate as countries continue to slash growth forecasts.
In South Korea, the Institute of Finance think tank took an axe to the country's GDP forecast, dropping it from 3.7 per cent to 2.8 per cent as the country struggles with a Middle East Respiratory Syndrome (MERS) epidemic. The U.S. Federal Reserve cut its 2015 growth forecast from a range of 2.3 to 2.7 per cent to between 1.8 and 2.0 per cent.
Here's The Economist:
"The global economy still faces all manner of hazards, from the Greek debt saga to China's shaky markets. Few economies have ever gone as long as a decade without tipping into recession – America's started growing in 2009. Sod's law decrees that, sooner or later, policymakers will face another downturn. The danger is that, having used up their arsenal, governments and central banks will not have the ammunition to fight the next recession. Paradoxically, reducing that risk requires a willingness to keep policy looser for longer today."
"It is only a matter of time before the next recession strikes. The rich world is not ready" – The Economist
"Global economic growth has become more reliant on three countries: China, America and India" – The Economist
Fed chairwoman Janet Yellen released Wednesday the central bank's statement on monetary policy and held a subsequent press conference. Combined, these two events managed to confuse pretty much everyone on the future of U.S. interest rates.
For my part, I was stunned that bond and equity markets didn't react more negatively to Ms. Yellen's comments that the Fed still plans to raise interest rates by 50 basis points this year. No one I know of has a portfolio positioned for this but markets rallied nonetheless after the statement.
Finance blog Across the Curve provided an excellent collection of Wall Street economist interpretations of the Fed statement. None of them sounded confident.
"Dealer Thoughts on FOMC" – Across the Curve
"Who Is Getting It Right? Citi and Goldman Trades Places on Their Fed Calls" – Bloomberg
CBC News documents the ongoing strength of the New Democratic Party in national polling while inferring the Liberals and Conservative are confusedly groping for new election strategies. If current trends persist, the Canadian market will likely begin to price in the potential effects of an NDP government on corporate profits.
This is not to suggest financial disaster although older Ontarians like myself are likely getting a bit twitchy at the thought of NDP leadership. There will definitely be a change in policy direction. The NDP have already signalled they will be a "friend to manufacturing" for instance. To the extent this means support for struggling businesses it sounds positive, but if it means wholesale taxpayer subsidies for uncompetitive manufacturers, it will prove a longer term negative for the domestic economy in my opinion.
"Tom Mulcair's 'government in waiting' rattles Liberals and Tories" – CBC
Tweet of the Day: "@markets Five years of Greek misery laid bare in five depressing charts bloomberg.com/news/articles/… pic.twitter.com/YhF4h3SMkv " – Twitter
Diversion: "Witness The Unbelievable Power Of Volcanic Eruptions Up Close" – i09