Asia Pacific

So far, 2016 has seen some dramatic falls already, but Bank of Japan’s negative interest rates put some hope back into the global economy. The yen fell and markets reacted positively to the news of more support from a major central bank…

Powered by Guardian.co.ukThis article titled “Global markets end tumultuous month on a high” was written by Justin McCurry, Dominic Rushe and Katie Allen, for The Guardian on Friday 29th January 2016 20.24 UTC

Global markets have ended a difficult month on a stronger note after the Bank of Japan stepped in to boost its economy with negative interest rates.

However, weak economic growth figures in the US underscored the scale of a global slowdown that has rattled investors.

Policymakers at Japan’s central bank stunned markets with a narrow vote to impose a 0.1% fee on deposits left with the Bank of Japan (BoJ) – in effect a negative interest rate. The central bank was spurred into action as volatile markets, flagging global growth and a downturn in China threatened major economies around the world.

In the US, news that the economy barely grew in the final three months of 2015 prompted speculation that its central bank would rein in plans to raise interest rates this year, having tightened borrowing costs for the first time in almost a decade in December. GDP rose at an anaemic annual rate of 0.7% as consumers and businesses cut back on spending, while US exports were hurt by weaker overseas markets.

Rob Carnell, economist at ING Financial Markets, said: “All in all, these GDP data support the sense given by recent monthly numbers that the US economy lost momentum into the end of 2015. We are struggling to see how this story is reversed in the coming quarters.”

Stock market investors were cheered by the prospect of US interest rates rising at a slower pace and by the Japanese move, which followed the similarly aggressive precedent set by the European Central Bank (ECB) in June 2014. The negative rate is designed to encourage commercial banks to use excess reserves – which they normally keep with the central bank – to lend to businesses instead.

The radical intervention provided an immediate boost to stock markets around the world after a dramatic start to the year that saw trillions of dollars wiped off their value in a matter of days. On Friday, the FTSE 100 in London closed up 2.6% at 6,084, to be back within a whisker of its starting level for 2016 of 6,242. That rise was mirrored around European bourses and followed a rally in Asian stock markets, where Japan’s Nikkei jumped 2.8% to a two-week high. At the time of the London close, Wall Street was also higher, with the Dow Jones industrial average up 1.7%.

Chinese shares also rallied following the Japanese rate move but still suffered their biggest monthly fall for seven years. The Shanghai Composite Index has lost 22.6% since the start of the year.

The surprise negative rates decision came just days after the BoJ’s governor, Haruhiko Kuroda, suggested he had dismissed any drastic easing measures to boost business confidence.

On Friday, the bank said it had not ruled out a further cut. “The BoJ will cut the interest rate further into negative territory if judged as necessary,” it said in a statement.

It said the move was intended to lessen the risk to Japanese business confidence from turbulence in the global economy, a week after data showed the Chinese economy had grown at its slowest pace for a quarter of a century in 2015.

The ECB held back from injecting more electronic cash into markets at its meeting this month but it too fired up share prices with a promise to consider more action in March.

The prospect of central banks pumping more stimulus into a struggling global economy has also helped stabilise oil prices. Brent crude, which earlier in January hit a 13-year low below $28 a barrel, stood at about $33.86 on Friday. It is still down 30% from a year ago.

Highlighting global unease about the global outlook following China’s slowdown, gold prices have gained almost 5% in January.

Friday’s estimate of US GDP from the Commerce Department was less than half the 2% annual growth rate in the third quarter and was the weakest showing since a severe winter reduced growth to a 0.6% annual rate in the first quarter of 2015.

Economists cautioned that this early estimate could yet be revised but said it still pointed to global headwinds buffeting the world’s biggest economy and suggested the US Federal Reserve would not go ahead with all four interest rate rises slated for this year. Some said the latest signs of a US slowdown left the US central bank looking unwise after December’s rate rise.

“The GDP growth slowdown sheds a rather critical light on the Fed’s decision to raise interest rates in December,” said Nina Skero, economist at the Centre for Economics and Business Research.

“For the sake of credibility, it is unlikely that the Fed will reverse its December decision, but rates are likely to stay at their current level until 2017.”

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USA 

World markets rise as investors welcome boost from cheaper credit in China and prospects for further delay to Federal Reserve rate hike in US. The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%…

 

Powered by Guardian.co.ukThis article titled “China interest rate cut fuels fears over ailing economy” was written by Phillip Inman Economics correspondent, for The Guardian on Friday 23rd October 2015 13.24 UTC

China fuelled fears that its ailing economy is about to slow further after Beijing cut its main interest rate by 0.25 percentage points.

The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%. The one-year deposit rate will fall to 1.5% from 1.75%.

The move follows official data earlier this week showing that economic growth in the latest quarter fell to a six-year low of 6.9%. A decline in exports was one of the biggest factors, blamed partly by analysts on the high value of China’s currency, the yuan.

The rate cut sent European stock markets higher as investors welcomed the boost from cheaper credit in China, together with the hint of further monetary easing by the European Central Bank president, Mario Draghi, on Thursday.

Investors were also buoyed by the likelihood that the US Federal Reserve would be forced to signal another delay to the first US rate rise since the financial crash of 2008-2009 until later next year.

The FTSE 100 was up just over 90 points, or 1.4%, at 6466, while the German Dax and French CAC were up almost 3%.

The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value. Shocked at the prospect of a slide in the Chinese currency, investors panicked and sent markets plunging.

Some economists have warned that the world economy is about to experience a third leg of post-crash instability after the initial banking collapse and eurozone crisis. The slowdown in China, as it reduces debts and a dependence for growth on investment in heavy industry and property, will be the third leg.

World trade has already contracted this year with analysts forecasting weaker trade next year. The International Monetary Fund (IMF) in July trimmed its forecast for global economic growth for this year to 3.1% from 3.3% previously, mainly as a result of China’s slowing growth. The Washington-based fund also warned that the weak recovery in the west risks turning into near stagnation.

At its October annual meeting, it said growth in the advanced countries of the west is forecast to pick up slightly, from 1.8% in 2014 to 2% in 2015 while growth in the rest of the world is expected to fall from 4.6% to 4%.

Sanjiv Shah, chief investment Officer of Sun Global Investments, said: “The Chinese decision indicates that the authorities are clearly worried about the slowdown in the pace of economic growth and have decide to engage in more pre-emptive action. The [People’s Bank of China] has cut benchmark rates and reduced banks’ reserve requirements as well as scrapping deposit controls.”

But Mark Williams, chief Asia economist at Capital Economics, remained upbeat about the prospects for China’s sustained growth, arguing that the cut in interest rates was part of a longer-term strategy and not a reaction to deteriorating growth.

“The key point is that we shouldn’t take today’s announcement as evidence that policymakers have grown more concerned about the economy. Instead, this is a controlled easing cycle that underlines how China’s policymakers, unlike many of their peers elsewhere, still have room for policy manoeuvre,” he said.

“Admittedly, we’re still waiting for clear evidence of an economic turnaround – September’s activity data still don’t show any great improvement. Nonetheless, with more stimulus in the pipeline, we still believe the economy will look stronger soon.”

Corporations considered bellwethers of the global economy have also warned of a sharp slowdown. Caterpillar, the industrial equipment manufacturer, has seen profits slide over the last year. AP Moller-Maersk, the shipping firm cut its 2015 profit forecast by 15% on Friday, blaming a slowdown in the container shipping market.

The Danish conglomerate operates Maersk Line, the world’s largest container shipping company which transports roughly 20% of all goods on the busiest routes between Asia and Europe.

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Britain’s top companies lose £36bn in value as stock markets react to US warnings on QE and drop in Chinese manufacturing. Ben Bernanke, chairman of the Federal Reserve, hinted on Wednesday about a possible easing of its $85bn-a-month bond-buying programme, in a testimony to Congress…

 


Powered by Guardian.co.ukThis article titled “Stock markets lose nerve on fears of end to quantitative easing” was written by Nick Fletcher, for The Guardian on Thursday 23rd May 2013 18.13 UTC

A day after the FTSE 100 came within 90 points of its December 1999 all-time high, the index slumped 143 points yesterday to 6696, wiping £36bn off the value of Britain's top companies.

The 2.1% fall was the index's worst in one day since it lost just over 2.5% a year ago to the day, on fears that Greece could leave the eurozone. But after its recent strong surge this latest fall in the blue-chip index merely wipes out the gains made since last Friday.

Stock markets around the world tumbled from their recent highs as investors took fright at weak Chinese manufacturing data and signs that the US Federal Reserve might end its bond-buying programme sooner than expected.

Markets have been buoyed in recent months by the various measures taken by central banks to stimulate the global economy by flooding it with cash. Measures include printing money, buying up mortgage-backed bonds and keeping interest rates at historic lows. Much of the recent economic data indicated the policy was having the desired effect, while the long-running eurozone crisis seemed to have entered a period of relative calm.

But analysts have been warning that any signs the money taps were about to be turned off or that the global economy was not recovering as expected would be taken badly by the markets.

Thursday's rout began with comments late on Wednesday from the Federal Reserve suggesting that America could end its quantitative easing, or QE, programme in the near future, and accelerated after a Chinese survey showed factory activity had fallen for the first time in seven months in May. The Nikkei 225 dropped more than 7% overnight on Wednesday to 14,483, its biggest one-day fall for two years. However, analysts pointed out that the Japanese index had almost doubled in value since November, so was still well ahead for the year.

European stock markets fell, with Germany's Dax and France's Cac both closing around 2.1% lower, while Italy's FTSE MIB fell 3% and Spain's Ibex was down 1.4%.

On Wall Street the Dow Jones industrial average, which had reached an all-time high this week, fell sharply when trading opened on Thursdaybefore staging a recovery. By lunchtime the US index was down just 15 points following stronger than expected weekly jobless claims and home sales.

Rupert Osborne, futures dealer at City broker IG, said: "The stronger home sales and jobless claims … fit with the idea that the US economy is approaching a point where a reduction in stimulus is appropriate. This neatly illustrates the irony of the position; traders across the world are openly hoping for poor US data since this keeps the Fed involved."

Ben Bernanke, chairman of the Federal Reserve, had hinted on Wednesday about a possible easing of its bn-a-month bond-buying programme, in a testimony to Congress. These comments were later compounded by the minutes of the Fed's last policy-making meeting, which showed that some members thought such a move could come as soon as June, much earlier than any analysts had been expecting.

Michael Hewson, senior market analyst at financial spread-betting company CMC Markets UK, said: "There was an expectation after Bernanke's testimony on Capitol Hill that the latest Fed minutes wouldn't add too much to overall market expectations around the prospects for further easing against expectations of possible tapering.

"The release of the latest Fed minutes completely changed that dynamic with a single line, 'a number of participants express a willingness to reduce QE in June'.

"The disappointing Chinese manufacturing data gave markets the extra nudge over the edge that was needed and persuaded investors with money in the game to cash in."

In China the HSBC purchasing managers index fell to 49.6 points in May, from 50.4 the previous month. Any level below 50 produced by the survey of industry indicates a contracting sector. China is a major consumer of commodities, so the signs of a slowdown in the country put metal prices under pressure, with copper down more than 3%. Oil prices also slid lower, Brent crude falling nearly 1% to 2 a barrel.

But gold and silver edged higher as investors searched out safer assets amid the sell-off.

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