On 4 February IMF Managing Director, Christine Lagarde warned that the global financial safety net — the international resources and institutions designated to fight economic crises and prevent contagion — has become too fragmented and asymmetric. The safety net, she said, needs to be reformed and strengthened.
The main driver of the investment climate is not so much the incremental economic data as the capital markets themselves. The market turmoil contributed to the tightening of financial conditions, which in turn heightened risks, which monetary officials are committed to resisting.
Financial markets stabilized last week, but the tone remains fragile. The damage to the technical condition and sentiment requires further consolidation to rebuild investor confidence.
Global equities are beginning the last week of February on a firm note. The MSCI Asia Pacific Index rose 0.75%, with China’s markets gaining more than 2%, leading the way. European shares have followed suit. The Dow Jones Stoxx 600 is up 1.7% near midday in London, led by materials and telecom. Like the MSCI Asia-Pacific Index, the Dow Jones Stoxx 600 is flirting with last week’s highs.
After a terrible first several weeks of the year, global capital markets stabilized in the past week. Chinese markets re-opened after the extended Lunar New Year holiday and proved not to be disruptive.
Chinese equities did not decline to catch-up to the performance of global markets in its absence and instead gained 3% on the week. The offshore yuan appreciated during the holiday, and the onshore yuan strengthened to converge with it. It traded in a narrow range after the markup.
The recent Zika virus outbreak has done more than terrify millions of people around the world; it has had an effect on global economies. Some countries have had to divert meager means to try to combat the outbreak. Others have lost significant amounts to declining tourism rates as visitors fear venturing to nations hardest hit by the outbreak.
The RBA minutes were not what I would call a riveting read. It almost verbatim confirms what was announced in the statement of monetary policy.
Last month’s the unemployment rate dropped (although January’s monthly figures show a surprise bump, for some reasons I will discuss further below) and the labour market is looking OK; housing price growth has slowed in Sydney and Melbourne easing concerns about a bubble, and inflation remains subdued. Essentially, no need to cut rates right now, but there seems to be some wiggle room if a cut is needed in coming months.
The Trans-Pacific Partnership (TPP) may yet be the agreement that most transforms national regulatory systems. It could be even more transformative than the Uruguay Round (1986–1994) that delivered the WTO and the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). However, much depends on if, and when, China joins the TPP.
The Bank of Japan (BoJ) started quantitative and qualitative monetary easing (QQE) in 2013, committing to achieve 2 percent inflation in two years. Since then, almost three years have passed. However, the target has not been achieved, and it is uncertain when it will be. This is why the BoJ has taken the bold step into the realm of negative interest rates.
So, why did the inflation rate fail to rise as initially expected?
For the past five years, Christine Lagarde’s face has been splashed across the media above headlines pertaining to the International Monetary Fund (IMF). Lagarde has been one of the most visible leaders of an international economic organization in recent history, and the leadership of the IMF has noticed. As a result, Lagarde has been nominated to serve a second five-year term as the head of the International Monetary Fund.
In 2016, the regional order in East Asia will continue to be characterised by a sense of instability. A key question as 2016 progresses will be: how best to focus US–Japan cooperation to address both the challenges and opportunities that accompany the rise of China? Six thorny issues carry the potential to undermine US–Japan cooperation. Close, careful US–Japan consultation and cooperation is required to ensure that these issues do not create a wedge in the alliance.
