Dow record high

Should we be concerned by markets at the moment? Take a look at the U.S. stock market for instance

Opinion

Are alarm bells ringing or is it just the usual general cyclical market noise?

The overall concern to many investors and analysts at the moment is that the global economy has shifted from synchronised growth to one in which expansion is now decreasing. Many of the major countries around the world have slowing economies and possibly face recession – even if at a technical level.

Central banks, interest rate policy and inflation

Interest rates are historically low in the United States and for many major world economies? If you keep driving rates lower, what do you get? What is the objective? Is it possible that low interest rates are partly responsible for weak economic growth?

Is it possible that if you push interest rates down too much, you end up creating more of the problem you are trying to solve? Inflation, however, must be controlled and interest rate adjustment is the favourite weapon in the central bank’s armoury. For most major economies 2% is the magic figure.

Interest rates

Debt

It is estimated that there is some 13 trillion dollars in negative yielding debt in the global financial system right now, partly the result of central bank policy especially in Europe and Japan. Here, rates that achieve less than 0% are hurting bank profits and preventing them from attracting capital and undermine individual savings accounts.

IPO’s

Is the slowdown or withdrawal or lacklustre performance of recent IPO’s in the U.S. an indication of potential economic slowdown too?

Manufacturing facing a global slowdown?

Manufacturing sectors appear to be contracting around the world. A recent survey of Chinese manufacturers released last week, showed that the sector is in contraction, while the euro zone has weakened even more. Germany be be facing recession in the next quarter.

Manufacture

If they can’t accumulate capital, they can’t expand and extend credit to companies, basic activity which drives economic growth.

And the Federal Reserve policy is…?

What if the Federal Reserve is headed down a similar monetary path as Japan and Europe, after announcing interest-rate cuts and pulling back rates by 0.25% to a 1.75%-2% range at its most recent meeting of 18th September 2019.

Federal Reserve

Conclusion

Are all of these observations just signs of the possibility of a slowdown associated with the late stages of an economic expansion cycle? After all, we have enjoyed a bull run now for some 12 years. The law of averages may have something to say about that too.

Just maybe the ‘tinkering’ from central banks is ‘overdone’ – after all, it has been some 12 years since the financial crash – and it still ain’t fixed!

These are just my observations.

Previous posts

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U.S. yield curve inverts again

End

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