The Bank of Japan meets later this week. We do not think that it will expand its already aggressive monetary policy stance. Given the largely operational adjustments announced last month, it seems premature to expect substantive adjustment now. It is true that the recent string of data has been mostly disappointing, and the yen has strengthened on a trade-weighted basis over the past month.
There is no doubt that China is building up its military capabilities. Nor that Japanese Prime Minister Shinzo Abe played up the threat of China, which spends three times as much as Japan does on its national defence, as a justification for new security legislation in Japan. However, deeper scrutiny of this issue requires a broader perspective on China’s strategic intentions.
EM enjoyed a nice bounce to end last week. The global liquidity outlook has clearly moved in favor of EM, at least for now. However, the overall global backdrop has not shifted in favor of EM just yet. Bottom line: enjoy this EM rally with a short-term timeframe in mind, with the idea that EM turbulence will likely return later this year.
European markets are reeling as economic data points to worsening conditions despite promises that European economies will receive monetary support. European shares ended last week on a rally after the European Central Bank hinted at more quantitative easing, but many economists warn that the bounce has little to do with fundamental strength in the economy.
1) Malaysia’s central bank kept rates steady at 3.25%, as expected, but cut bank reserve ratios from 4% to 3.5%, 2) S&P downgraded Poland one notch to BBB+ with negative outlook, 3) Brazil’s central bank did a complete about-face and left rates steady at 14.25%, 4) Mexico may tweak its FX auction program again when it is extended this month, 5) Argentine officials met with IMF chief Lagarde at the World Economic Forum in Davos
Japanese stocks officially entered a bear market on Wednesday and continue to see pressure, despite quantitative easing measures that propped up stocks in years past. The Japanese Topix index fell 3.7 percent in a day and lost over 20 percent of its value from its peak last summer. The Nikkei 225 fell a similar amount by the close, leading to an almost 14 percent year-to-date loss.
While forest fires may represent a common sight around the world, as is the damage they wreak, few regions have suffered more economic harm, as a percentage of GDP, than Indonesia did in 2015. Last year, Indonesia’s fires cost the economy at least $16 billion. That amounts to 1.9 percent of Indonesia’s gross domestic product (GDP), according to the World Bank.
According to finance minister Arun Jaitley, India’s economy may grow as much as 9.0 percent annually, but only under the right economic conditions, according to CNN Money. The South Asian country achieved significant growth in 2015, but it was held back due to such factors as a decline in the steel industry and a heavy monsoon season. India remains the fastest growing major market in the world, outgrowing China.
China has posted its lowest annual GDP growth since 1990. The slowdown is seen as a major concern for some investors, but against a backdrop of disappointing consumer spending, intensifying deflationary pressures, tepid export growth, and a stock market that looks out of control, 6.9% growth was expected for 2015. It is not the stellar growth of the past decades and is down from 7.3% a year earlier, but it is still decent given local and global economic conditions.
There have been a couple of notable signals about the upcoming EU referendum lately. A public opinion poll showed a clear majority lead for Brexit, then a Financial Times poll of more than 100 leading economists concluded that a vote to leave would damage UK growth.
However, while the arguments for and against are still shaping up, everyone appears to be ignoring how the credit-ratings agencies would respond to Brexit.
