Apparently the party rages on for Central Banks. They continue to incentivize markets and spending without a care for the consequences…
Have you ever been to a party that was so much fun you just did not want the night to end? The host did a great
job picking the beer, the entertainment, and the conversations just went on for hours. Before you knew it was the wee hours of the morning, and you said, ‘screw it, let’s watch the sun come up’. Oh what an epic night and you and your friends may even talk about that night for years to come. What you likely will not talk about, at least not in an affectionate way, was the next day…
For all intents and purposes it feels as though the Central Banks of the world are in the wee hours of the morning. Where they feel like just staying out a little bit longer for that all important sunrise. That sunrise could in fact be a sunset on our current expansion.
Many of the economies of the world enjoyed stronger than expected economic data last week. In addition to strong economic data, both the European Central Bank (ECB) and the Peoples Bank of China (PBOC) made headlines.
In the US Housing data was in focus last week and did not disappoint. NAHB Housing Market Index improved to 64, Housing starts grew by 74,000 (6.5%), and the House Price Index increased 5.5% through August. In addition to great housing data, Manufacturing unexpectedly increased in September.
The ECB announced that they intend to take further action later this year. Expectations circle the central themes of lowering interest rates (which are already negative) and increasing their bond buying program, in both size and duration. This announcement came in a week where economic activity appears to be strengthening due to efforts already taken by the ECB. PMI data outperformed expectations with the composite coming in at 54.0. As would be expected yields in European sovereign debt lost ground last week on news of the expanded ECB efforts. As a reminder, when yields go down, prices go up.
GDP for the 3rd quarter was announced last week and it came in at 6.9%, the lowest level since 2009. In an effort to combat their slowing economy China lowered 3 key rates; Reserve Rate Ratios was decreased .5%, Their deposit rate was decreased .25%, and the PBOC was decreased .25%.
They are enjoying the party now and they still have that sunrise to look forward to… but no one looks forward to the hangover…
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