After years of rate cutting and bond-buying central bank policies are now being questioned by financial markets. The euro and yen, targeted casualties of these policies, shot up with a vengeance. Especially the major move in JPY suggests investors are getting doubtful.
And rightly so. Central banks’ only goal, getting inflation to target, is no where in sight. This week the European Commission, again, lowered its Eurozone inflation forecast. For this year we get 0.2%. That’s the wrong order of these two digits, Mr. Draghi!
Other central banks have started to ease again. The Reserve Bank of Australia unexpectedly lowered the overnight cash rate. The reason? Lowflation, of course. The depreciation of the AUD, is a pretty convenient side-effect.
If you are looking for inflation, you have to go to more exotic places to find it. Venezuela being the best example, as hyperinflation is killing off the economy. But Kazakhstan is also doing ‘great’ with an inflation level of 16.3%.
Implied default rates are intriguing statistics and reveal some interesting investor views. For example, China, the world’s second-biggest economy has an 5-year implied default rate of 11%. That odd is not easily overlooked.
Over to the US. After disappointing ADP numbers, nonfarm payrolls at 160K also lagged expectations (200K). In addition, the unemployment rate failed to dip below 5%. If Yellen was looking for a way out of a rate hike in June, she has now found it.
Fortunately, the ISM Non-manufacturing index unexpectedly rose to a healthy 55.7. As mentioned before the US likely experienced a manufacturing recession, which is different from a general economic recession.
Goldman Sachs this week made a prediction that property prices in Hong Kong could drop up to 20%. When it comes to asset prices inflation central banks around the world probably did a ‘good’ job, and the graph below ‘proves’ that.
Finally, oil is up, but oil production is not down. Rigs have fallen of a cliff, shale companies go bust every week, but the real damage to production has yet to show up in the charts. I guess it will come, but so far oil production around the globe has been pretty resilient.