What Happened to the Recovery?
The recent easing of the Ukrainian crises has led investors to slowly reverse their safe haven positions and refocus on economic fundamentals. The Japanese Yen for example which jumped over 1% on Monday has taken a leisurely drift back over the past two days to pre-crises levels. Likewise energy and food commodities have all backed off the recent geopolitical tension driven highs. Even Gold, which had been experiencing more technical driven buying, has eased a little over the last 24 hours.
The nervousness that has been in the markets since the Russians squared up on the Ukrainian border has gone, only to be replaced by a nervousness of a different kind. Market participants have woken up to the fact that fundamental factors are still very much in play, and more significantly that many of the economies that previously appeared to be on the road to recovery are in fact in much more fragile states.
Australia has admitted to it’s growing unemployment problem. The US has declared that recent soft data cannot all be blamed on the weather. Japan is beginning to realise that it’s latest efforts to stimulate the lagging economy are far from guaranteed success. Europe is perilously close to a deflationary spiral. China is in denial regarding the rate of it’s slowdown in growth.
It is hard to see how this reconciles with the recent upgrade in long term growth targets announced last week when the G20 met in Sydney. One thing is for sure, Central Bankers of the world will have their work cut out for them over the coming months. Beginning this week. The Reserve Bank of Australia laid out it’s stall yesterday by deftly balancing the needs to manage both inflationary and unemployment pressures. Next up are the Bank of England, who get a by this round due to relative robustness of the UK, and the European Central Bank who really should be more alert to the dangers of deflation in the Eurozone.
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