Global Economics Update

Submitted by Share Trading on 29 April, 2008 - 11:48

Here is an update on global economics from market analyst Macquarie Research Equities.

Global Economics – The BIG Questions Coming Up

This week proves to be a big test for global financial markets. Key data releases, such as US GDP, ISM and payrolls data, and not to mention the Federal Open Market Committee (FOMC) meeting, will cement views about the direction of the US economy. Whilst another 25 bps interest rate cut is widely anticipated, there are hints that this could possibly be the last for some time. Quite simply, the criticality of this data release will ultimately determine whether US federal policy actions have been effective in nullifying the impacts of the credit crunch. So have they?

Macquarie Research Equities (MRE) infer that financial markets are perhaps starting to believe in stronger growth levels in the US economy, but why you ask? Well it appears that parts of the credit markets have indeed illustrated a degree of resiliance of late. Corporate bond issuance in the US has also improved, posting a record gain last week of $US45.3bn. It’s interesting to note that the previous record was in June 2007 when the credit boom was close to its apex. MRE go further to state that in a genuine credit crunch, capital is not available at any price, clearly not the case at the moment, with capital flowing quite readily, albeit at a cost.

Although there are signs that global financial markets may be on the mend, significant strains still persist. The inter-bank lending rate, for example, is high compared to official interest rates and inflation remains an underlying concern for a number of economies. Rising food and energy prices are causing concern even in the Japan, and higher input costs continue to put pressure on European business.

Clearly a lot is riding on the 1Q data. MRE indicate that if there is going to be a recession, it must be over in the first half of 2008. So if data reveals positive growth in early 2008 then many analysts will likely conclude that any recession will be short lived.