November 26 2014
Pioneer. Trendsetter. Trailblazer. Whatever term you decide to use, there’s no debate about the fact central banks around the world are taking a page or two from the U.S. Federal Reserve’s playbook. The Fed may have ended quantitative easing (QE) – its program of buying government bonds to keep interest rates low and increase money supply – in October, but that doesn’t mean QE hasn’t become popular elsewhere. Barron’s reported:
“…virtually every other major central bank is maintaining or stepping up its pace of money printing – even where the success in spurring growth is questionable. On October 31, Japanese authorities doubled down on asset purchases by the Bank of Japan, and the nation’s pension fund, to spur flagging growth… In a surprise move on Friday, China cut interest rates for the first time in two years in an effort to spur slowing growth… That was followed by European Central Bank President Mario Draghi’s signal the ECB would expand its stimulus plan, leading observers to expect large-scale, Fed-style purchases of government debt.”
Although some Americans remain skeptical about the health of the U.S. economy, growth in the United States stands in sharp contrast to growth elsewhere. The U.S. Department of Commerce reported real gross domestic product (GDP) – the value of goods and services produced in the United States – increased by 3.5 percent during the third quarter of 2014 after growing by 4.6 percent in the second quarter. For the same period, the Eurozone’s GDP grew by 0.6 percent, which is well below its 2 percent pre-crisis growth rate, and Japan’s GDP declined by 1.6 percent during the third quarter after a 7.3 percent drop in the second quarter.
While Japan has been mired in economic stagnation for some time, it’s a relatively new experience for the Eurozone where unemployment hovers around 11.3 percent – a record high. Aggression in Ukraine is complicating matters in Europe. An expert cited by The New York Times explained, “We are at most one or two rounds of sanctions and counter sanctions away from pushing Russia into a deep recession, and Europe into a recession.”
While concerns remain about the health of the global economy, markets generally were pleased about central banks’ easy money policies and most global stock markets finished the week higher.
- Data as of 11/21/141- WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)0.0120.1160.1490.20.1330.058
- 10-year Treasury Note (Yield Only)2.3N/A2.823.44.2
- Gold (per ounce) 30.2-2.9-10.90.610.4
- DJ-UBS Commodity Index1.1-6.1-4.2-6.2-2.7-2.5
- DJ Equity All REIT TR Index126.96.36.1998.317.58.7