Author: Dr Shane Oliver, Head of Investment Strategy and Chief Economist, published on 21 June 2019
The attached note looks at global interest rates particularly after comments from the ECB and Fed this week. The key points are as follows:
- The ECB and the Fed now clearly look to be heading towards monetary easing, probably from July.
- We expect two rate cuts this year from the Fed.
- The shift back towards monetary easing by global central banks against a backdrop of low inflation adds to confidence that global growth will pick up again over the next six months or so and this will all support share markets on a six to 12-month horizon.
- We still see the RBA easing more than the Fed given the weaker state of the Australian economy and so, on balance, continue to see the $A falling to around $US0.65 by year end.
This decade has now seen three global growth scares – around 2011-12, 2015-16 and now since last year. Each have been associated with softening business conditions indicators (or PMIs) as indicated in the next chart – see the circled areas.
And each have been associated with roughly 20% falls in share markets.
All have seen central banks shift towards easing to varying degrees. And in the first two this saw growth indicators pick up again and share markets rebound and clearly move on to new highs. We now seem to be seeing a re-run – at least with respect to central banks.
With higher risk implication this time given the trade war mess and with the US yield curve inverting, was the Fed’s decision to cut rates a wise choice? Read the entire article here to find out.