The global stock market, fears of recession
At the start of trading on Monday, the charts of global markets go into a “green zone” on the background of General monetary policy and hopes for further stimulus.
For example, the people’s Bank of China announced the reform of interest rates, designed to soften lending terms for companies. The reaction to these measures was immediate: China’s stock indexes rose more than 1.5% since the beginning of the day.
Before that on Friday it was reported that Germany’s coalition government is preparing to revise its budget rules. This gesture should help the economy avoid recession. Last week it also became known on the reduction of the GDP by the end of Q2. At the same time, business sentiment in August fell to multi-year lows, which promises to result in even greater reductions by the end of the third quarter.
Explain that both Germany and China largely depend on the state of world trade, but because they are the first to feel the pressure of growing trade conflicts. The governments of these countries almost simultaneously consider measures to support domestic demand with no significant ability to affect external demand.
Similar incentives are waiting for many other economies. This “oppression of hope” continues to cause a further reduction in interest rates on the bond markets. Note that the low rates support the appeal of raw materials and stock. For the global economy in General is also a positive factor that enhances the attractiveness of lending. On the other hand, in the markets there is a fear of low rates, because they coincide with economic downturns.
It turns out that investors are waiting for news about softness, which at the same time and fear, seeing in it a sure sign of recession. In such ambiguous conditions of the global Central Bank will have to weigh carefully their words so as not to provoke unnecessary volatility. It is important to remember that it can be called as too soft and too harsh position. What choice will be made – will know this week.
So, on Wednesday will release minutes of FOMC meeting, which should shed light on the true causes of a rate cut in July. Thursday and Friday at a Symposium of Central bankers in Jackson hole you will hear the most recent estimates and projections on monetary policy. The main question that the markets will be looking for a response – ready if the fed continue to cut rates. The most likely scenario now is a systematic reduction of interest rates on each of the remaining three meetings of the fed this year. Previously, Powell noted that the July easing only a small correction and not the beginning of a long cycle.
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