WESTPAC: The Global Economy Is Not As Weak As Traders Think

Getty/Rusty Jarrett

Bill Evans, Westpac’s chief economist, says that the rally in global bond markets is out of whack with reality.

He says that it wrongly interprets the recent economic slowdown as impacting the end of the Fed’s QE this month and underestimates a pick-up in global growth in 2015 and 2016.

He says rather, the recent uptick in volatility is consistent with what happened at the end of QE1 and QE2.

It seems reasonable for the FED to take the attitude that because the key raison d’être for QE – the stimulus to bank lending – has not eventuated, it is time to terminate the policy. Markets should not be surprised that volatility has lifted as we move toward the completion of QE 3.

Evans also doubles down on his call that by the end of 2016 “the RBA cash rate will be back at 4.0% and the FED at 2.25%” and says that he is “expecting world growth to lift to 3.7% in 2015 and to an above average 4.5% in 2016. The key driver of that growth lift will be the US economy.”

If he is right, traders face a very different future to the one that the markets are currently pricing.

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