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Tony Alexander BNZ Economist ‘Weekly Overview’ 12 February 2016

BNZ Weekly Overview from the desk of Tony Alexander Economist;

So Many Problems Overseas
Since the start of this year share prices around the world have fallen sharply, oil prices have tumbled
taking prices for other commodities with them, the Bank of Japan has introduced a negative interest rate,
the European Central Bank is expected to ease again soon, and expectations of four rate rises this year
from the US Federal Reserve have evaporated. Why the turnaround in sentiment?
There is no single factor accounting for the deepening heebie geebies but a gathering of many
geographically dispersed things. An early trigger for the rout was the tightening of US monetary last year
and uncertainty about what it would do and the risk that the Fed. might blindly continue to tighten
regardless of current economic conditions. An underlying source of concern getting worse by the week
now is weakness in China’s economy, evidence of massive excess housing and factory capacity, worries
about debt levels, and a weakening yuan pushed downward by massive capital outflows which are steadily
depleting China’s huge foreign currency reserves. Plus the lower the Yuan goes the cheaper Chinese
products in foreign markets and the higher the risk of deflation in economies like Japan and the EU.
Japan’s economy spluttered last year almost back into recession and faith in the efficacy of Prime Minister
Abe’s Three Arrows policy (easy fiscal and monetary policies plus deregulation) has evaporated. The Bank
of Japan is engaging in unlimited money printing, businesses and aging households don’t won’t to borrow
more money, government debt grows still, and the BoJ is now charging banks 0.1% to deposit money
overnight….follow the link for the full overview; Tony Alexander BNZ Weekly Overview

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