15 Feb 2016
US finally giving us respectable data? - ANZ
Analysts at ANZ Bank explained that one of the catalysts for the better tone to financial markets on Friday appears to have been some respectable economic data out of the US.
Key Quotes:
"Retail sales were solid and consumer sentiment held up relatively well. This is important, as together with concerns over China’s outlook and emerging markets more generally, recent US data wobbles have added to financial market angst. There has even been talk about the US falling back into recession and the Fed needing to adopt negative interest rates. Now of course, one set of data does not alter the backdrop massively, and there remain some large headwinds for the global economy to navigate (credit market developments remain unnerving)."
"But the point is that if growth can hold up better than expectations, then perhaps markets can emerge from their current funk. We often talk about changes in financial conditions and the implications this can have for future economic growth, but the direction of causality runs in both directions. Growth outcomes affect financial conditions too, given that the latter trade on expectations for the former.
If growth expectations do prove to be too pessimistic, then some reassessment in financial markets may need to take place. Surely, monetary policy tightening due to a better economic backdrop is better than wishing for additional sugar pill type liquidity injections because growth is weak. One seems far more sustainable than the other. So the question remains: can growth save the day".
Key Quotes:
"Retail sales were solid and consumer sentiment held up relatively well. This is important, as together with concerns over China’s outlook and emerging markets more generally, recent US data wobbles have added to financial market angst. There has even been talk about the US falling back into recession and the Fed needing to adopt negative interest rates. Now of course, one set of data does not alter the backdrop massively, and there remain some large headwinds for the global economy to navigate (credit market developments remain unnerving)."
"But the point is that if growth can hold up better than expectations, then perhaps markets can emerge from their current funk. We often talk about changes in financial conditions and the implications this can have for future economic growth, but the direction of causality runs in both directions. Growth outcomes affect financial conditions too, given that the latter trade on expectations for the former.
If growth expectations do prove to be too pessimistic, then some reassessment in financial markets may need to take place. Surely, monetary policy tightening due to a better economic backdrop is better than wishing for additional sugar pill type liquidity injections because growth is weak. One seems far more sustainable than the other. So the question remains: can growth save the day".