Tanking Stock Markets Could Smash Economy

Strong economic news out of the US is widely credited with 10%-plus falls in global stock markets.

‘Good news is bad news’ has become the new normal in recent years. That’s because much of the global recovery was driven by central banking policies of record low interest rates and money printing.

With the US economy strengthening, interest rates are going up and the easy money days are nearing an end. That reality has seen markets tumble.

But in a vicious feedback loop, the tumbling markets may in turn take the steam out of the economy.

Australians, for example, started 2018 in a positive mood, hitting confidence levels not seen in five years and pointing to a potential win for retailers.

However, the extreme volatility seen in global financial markets in the past week, which has wiped tens of billions of dollars off Australian shares, is likely to have curtailed such exuberance.

The Westpac-Melbourne Institute consumer sentiment report for February, which is due on Wednesday, will have been surveyed over the weekend.

Sentiment is likely to be affected by increased financial market turbulence in recent weeks with a sharp sell-off in global equities,’ Westpac economists say in their weekly outlook. 

The sharp drop in Australian shares was triggered by a steep selloff on Wall Street on concerns the US Federal Reserve may need to be more proactive in raising interest rates.

The more volatile weekly consumer confidence gauge produced by ANZ and pollster Roy Morgan is released on Tuesday.

Confidence has been lifted by a strong employment market despite wages growth having been flatlining at a 20-year low.

January labour figures are released on Thursday.

Economists are expecting a more modest rise in employment of 15,000 in January after the upbeat pace that saw a record 403,000 people get a job over 2017.

However, they expect this still could be enough to see the jobless rate tick back down to 5.4% from 5.5% in December and to a five-year low seen in October and November last year.

In its quarterly monetary policy statement on Friday, the Reserve Bank said it expects the unemployment rate to have eased to 5.25% by the middle of this year as the economy strengthens.

The Australian Tribune with AAP

The Australian Tribune with AAP

The Australian Tribune with AAP

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