While you were sleeping: Growth worries ratchet higher

Friday 8th April 2016

Equities declined amid renewed concern about the global economy and whether the world’s central banks have hit a wall in efforts to bolster growth.

International Monetary Fund Managing Director Christine Lagarde warned that the global growth momentum was weak, while risks were probably on the rise, and confidence sorely lacking.

“The good news is that the recovery continues; we have growth; we are not in a crisis,” Lagarde said in a speech in Frankfurt. “The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing.”

“Let me be clear: we are on alert, not alarm,” Lagarde noted. “There has been a loss of growth momentum. However, if policymakers can confront the challenges, and act together, the positive effects on global confidence—and the global economy—will be substantial.”

Also weighing on investors’ minds is the strengthening of the Japanese yen, which touched a 17-month high against the US dollar amid bets the Bank of Japan won’t intervene, even as it hampers its efforts to stoke the nation’s economy and inflation.

Exporters bringing cash home are the main driver of the yen’s 11 percent rally against the US dollar this year, not speculators, so selling the currency to weaken it would be ineffective, JPMorgan Chase & Co’s Tohru Sasaki, head of Japan markets research at JPMorgan in Tokyo and former Bank of Japan official, told Blooomberg.

"Today, the yen is really the name of the game, because there's indications that Japan might not really be able to escape that funk that it's in," Jeff Weniger, senior portfolio strategist at BMO Private Bank in Chicago, told Reuters.

Wall Street declined. In 2.08pm New York trading, the Dow Jones Industrial Average slid 1.1 percent, while the Nasdaq Composite Index dropped 1.6 percent. In 1.54pm trading, the Standard & Poor’s 500 Index declined 1.2 percent.

Declines in shares of Goldman Sachs and those of Verizon Communications, down 3 percent and 2.6 percent respectively, led the drop in the Dow.

The US jobs market, however, continued to offer signs of strength. A Labor Department report showed initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 267,000 for the week ended April 2.

"The persistently low level of claims should provide some reassurance that the economy is growing, even if that growth appears more sluggish that most would have hoped a few months ago," Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan, told Reuters.

In Europe, the Stoxx 600 Index ended the session with a 0.8 percent decrease from the previous close.

The UK’s FTSE 100 Index gave up 0.4 percent, France’s CAC 40 Index retreated 0.9 percent, while Germany’s DAX Index fell 1 percent.

Shares of Fiat Chrysler Automobiles dropped 3.9 percent after the car maker said it would cut 1,300 jobs at a Michigan factory.

BusinessDesk.co.nz

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