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Hectic Swings Hint At Fragile Recovery

Published 09/10/2015, 05:46 AM
Updated 04/25/2018, 04:10 AM

The high volatility and large swings are what drive the equity markets in a hectic fashion at the moment. The disillusion of an economic recovery tweaks the central banks back to the monetary easing phase, one after the other. Desolately, the central banks are left with little manoeuvre margin and a set of inefficient policy tools given that the massive cash injection and ultra-low interest rates failed to revive the economic growth since the crisis hit the markets in 2008. Seven years of monetary and fiscal efforts have cost a lot, yet received small benefits in return.

RBNZ takes a third step back

The RBNZ, which has been the first G10 central bank to have dared to tighten its monetary policy and proceeded by 100 basis rise between January and July 2014, has been constrained to lower its official cash rate by 25 basis points for the third consecutive time since May 2015. The RBNZ is only 25 basis points from the starting point. The bank did not rule out a future easing.

Nikkei stocks fail to consolidate gains as solvability concerns surface

Nikkei stocks dropped 2.5% in Tokyo following yesterday’s 7.7% surge as PM Abe announced his plans to cut the corporate taxes by 3.3% over the next two years.

Unprecedented fiscal and monetary loosening to bolster growth is a major problem regarding Japan’s midterm solvability and the strength of the government budget. Although the convenient fiscal conditions and the excess cash deliver a convenient base for new businesses, the recent years witnessed of a solid resistance to step on the field.

As a result, the injected cash vanished in the stock market before reaching the real economy. Hence, there is an increasing emergency for an alternative, new set of measures to repair damages.

This being said, interestingly the so-called Abenomics have the potential to revive the selling pressures on the yen in a context of desperation. Although a lower yen proved to be insufficient to boost the external demand, traders are well armed with hackneyed principles to move the yen market lower; hence ‘trend is your friend’ will certainly not leave the yen below 120 mark against the USD by the end of this year.

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