Outlook: Early signs of autumn jitters in equity markets
Wednesday 22 September 1999
However, the view from these sunlit uplands is clouded. New figures yesterday showed the US trade deficit is yawning ever wider. This reflects the role played by the supersonic American economy in carrying the rest of the world so benignly through the crisis. It also signals the pent- up inflationary pressures from US growth, kept at bay so far by the strength of the dollar.
Unfortunately, the dollar is now on the slide, at least against the yen. A weaker dollar will help correct the trade imbalance, over time, but will also tend to boost inflation. And the corresponding gains in the yen threaten to derail the Japanese recovery, which in turn is needed to keep the rest of Asia growing too. The question facing the world's policymakers, gathering in Washington for this weekend's G7 meeting, is therefore how to achieve a gentle correction in the balance of growth and trade without triggering a currency market over-reaction.
One solution was barred by the Bank of Japan yesterday, with its firm refusal to do what everyone else in the world thinks it ought to, and loosen monetary policy through the good old Keynesian method of pumping cash into the economy. The Japanese government will agree to run a yet bigger budget deficit, but it is close to the limit of how much more it can achieve through fiscal stimulus. This is because any budget deficit judged to be unsustainable will raise long-term interest rates in the bond market thus counteracting the beneficial effects of the stimulus.
That puts the spotlight firmly on Alan Greenspan. Yet again the grand old man of central banker has been cast in the role of economic superman. The chances are he will raise US interest rates further in October. By slowing the economy, higher borrowing costs would help trim import growth. They should also help the dollar, or at least prevent it from falling too sharply.
However, even "Superspan" needs the occasional helping hand. American policymakers have said it time again; to solve the imbalances in the world economy, others must now take up the baton of growth and run with it. The weak euro is clearly aiding European recovery. Japan's central bank chief will have a lot of explaining to do at the weekend if he sticks to his guns. Meanwhile, a repeat showing of the now familiar autumn wobble in world equity markets looks all too possible. We may already be seeing its early signs.
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
- 4 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
- 5 Of course, teenage girls need role models – but not like beauty vlogger Zoella
Isis releases first video showing the stoning of woman accused of committing adultery as her father shouts 'don't call me Dad'
FCKH8: Provocative anti-sexism video showing young girls swearing reinstated by YouTube
Diwali: What is the festival of lights – and how is it celebrated around the world?
Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
London bus driver 'kicks gay couple off for kissing'
iJobs Money & Business
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...
120-150k: Accountancy Action: We are looking for an experienced CFO from a min...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...