In what has been a big shock to markets, 16 central banks have changed their stance on monetary policy in the first six weeks of 2015.
What seems like indecent haste has many market players wondering if it is a coordinated move.
Indeed, Westpac’s Global Strategy team in a note overnight said:
“The wave of monetary policy easings has continued and we count 16 central banks and 18 cuts so far this year. The list is set to get longer, but markets are finding it harder to comprehend the speed of policy change.”
Last night’s move by the Danish National Bank to cut rates to -0.75% won’t be helping comprehension.
But these two charts from the ANZ’s Global Economics team show that co-ordinated or not, the reasons for the surprise moves – including for many, our own central bank – are not only sound but desperately needed.
The ANZ’s Global Lead Indicator (GLI) has sunk to its lowest level since 2013. The bank says this is “driven by the recent slowing in US manufacturing and ongoing weakness in China”.
Given that Japan is the only positive contributor to the GLI, it’s easy to see why the ANZ adds ominously that, “our GLI is set to fall further in the coming months”.
“This raises doubts about whether US strength alone can support the world. On the contrary, it seems global weakness is weighing on the US,” the ANZ wrote, noting also the Fed has more time than many think before increasing rates.
On the inflation front, the picture is even more dire – if that’s possible. According to the ANZ, “the deflation/disinflation pulse for advanced economies is gaining momentum as commodity prices continue to plunge”.
We’ll hear more from the RBA at 9.30am with the release of the quarterly Statement on Monetary Policy but what’s clear is that the growth and deflation outlook have deteriorated.
Central bankers have had no choice but to act.