Thoughts about the US Economy and the Market

Macquarie Research released some thoughts to ponder about the US economy and its effects on the global equity markets and the Australian sharemarket.

What does the US Economy hold for the Market?

Last week several leading US indicators were released to the market, which point to a worsening outlook for US growth. The key figure was that of consumer confidence which made a significant fall in March, further compounding inflation and growth fears. Along side these figures were those showing that the housing market has continued to weaken, though the pace of deterioration has slowed. Throw into this mix a weakening US dollar and the picture is darkened even more.

A flickering light did bring a glimmer of hope, with certain indicators, such as durable goods levels, pointing to the view that manufacturing is still buoyant. Despite these glum figures a change may be occurring, with all indicators either slowing their falls or not significant enough to reflect an overly severe slowdown from here on. What it does show is that the Fed is beginning to gain some ground in avoiding a possible recession, even though tough times are still to come via a slowing economic growth and avoidance of a recession is not guaranteed.

What impact does all this have on the Australian market? Supportive measures from the US Fed to improve liquidity and a somewhat reduced expectation for additional official cash rate hikes contributed to a slight easing of the spot 90 day bank bill rate. Of particular relevance to this issue is the announcement over the weekend that US President George Bush will expand mortgage relief, which will act not only to minimise more foreclosures, but ease stress on already battered lenders. This in turn may minimise the overall impact housing has on the credit crisis faced by the economy as a whole.