Global markets continued upward and China reassesses economic plans
Global equity markets continued their upward trend last week. On Saturday, China’s chief economic planner announced a lower GDP growth target of 6.5%-7% but warned that predictions of an abrupt economic slowdown were “destined to come to nothing”. This is the week of China’s National People’s Congress, where the country’s leaders reassess their current economic plans and set out new ones for the coming year. Given the turmoil that has been seen over the course of last year, and more importantly in the last two months, announcements at the Congress will be closely watched for any significant changes in policy. It is expected that the government will continue to guide the economy towards more consumer-driven growth, cut industrial capacity and attempt to reduce the growth in debt levels.
On Friday, it was announced that job growth in the US remained high with 242,000 jobs added in February, better than the 190,000 expected. Many forecasters had predicted that job growth may begin to weaken as companies held back on hiring, with the backdrop of economic and political uncertainty. Therefore, the announcement came as a positive shock, leading markets to a strong finish for the week.
In the Eurozone, consumer price growth swung abruptly into negative territory, recording minus 0.2% for February in contrast to a 0.3% increase in January. The swing to negative increases the pressure on the ECB chief Mario Draghi to boost the current stimulus. However, interest rates are already negative, and quantitative easing cannot be significantly expanded as the stock of suitable government bonds grows ever narrower. Some economists are now warning of the implications of long-term negative interest rates and the effects it may have on consumer and investor behaviour particular when it comes to evaluating investment risk. The possibility of citizens hoarding notes rather than keeping money in the bank may have real implications on the way an economy operates. Central banks unlikely to want to keep interest rates negative for longer than is necessary.
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This week Chinese and German CPI will be announced as well as US jobless data on Thursday.
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