Economics This Week

This week has seen some very interesting developments on global stock markets. Domestically the All Ords fell below 5000 on Tuesday but ended the week 5% higher at over 5270. Generally, that seems to have been the story everywhere, the first three days of the week seeing substantial losses followed by strong gains on Thursday & Friday. The US in particular was tanking at the start of the week before rallying on Thursday morning resulting in the Dow Jones posting its biggest two day gains since the GFC.

On to the exchange rate and the AUD seems to have reached a new home below USD 0.72c, dipping below 0.71c for a time on both Wednesday & Thursday. In part this seems to be driven by weaker than anticipated non-mining sector investment which most economists see as unlikely to bridge the gap left by the mining industry in the near future.

Finally, there’s been a slew of back and forths in parliament over the Australia-China Free Trade Agreement. Some Federal Labor MPs see the agreement as neglecting potential safeguards for the labour force, a view that has which has frustrated Liberal MPs & a few former Labor members, including Bob Hawke. Overall, the specific issues haven’t been made clear & at the moment it seems to be relegated to the political, rather than the economic, sphere.

Economics This Week

This week the major news has been the Chinese manufacturing figures released which suggests their growth is at a 6 year low. Poor expectations for the world’s largest nominal economy has seen most stockmarkets around the world take a sharp fall while gold prices rose notably. This was certainly the case domestically, with most of the volatility being driven by up and down movements in Big Four bank shares.

Overall, this seems to runs counter to the more optimistic position the RBA board has taken. Regarding conditions in China and domestically as more positive than expected and the most favourable for some time, once again it’s a case of markets versus economists.

Finally, on a more political note Greece is in for another election as the Prime Minister Alexis Tsipras submitted his resignation to the President in order to determine if the Greek people wish him to remain in power but with a new mandate.

Interesting Article

Once again our VP-Internal, Kai Zen, has provided us with a great article for this weeks newsletter. This time it’s on the Visa/Mastercard Theory of Recessions, a unique take on what exactly the use of EFTPOS can mean for the general price level in different countries depending on the countries payment culture. In effect the article suggests that if a change in transfer fees is passed onto consumers in the form of higher prices then the central bank might see this as an increase in the CPI. As a result, monetary policy might shift to counter a non-existent increase in inflation, potentially driving the economy into a recession & cause Irving Fisher’s reknowned debt-deflation scenario.