The European Central Bank spent $125 billion bailing out Spanish banks this past weekend. This came just days after China cut interest rates and India ramped up several infrastructure projects. And these economy-boosters aren’t the last you’ll be hearing about.
How will this high-speed stimulus bandwagon affect the markets? Tune in to today’s video to find out what’s coming next, and what I believe the single-biggest winner will be.
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Hi, this is Monty Agarwal for Uncommon Wisdom Daily.
Even before the May employment report came out earlier this month, I was warning about a coordinated effort by global central banks to prop up the economy and the markets with additional money printing. Now, I’m even more certain that the stimulus is coming.
In fact, the slowdown in China’s manufacturing activity and overall economy is already prompting action there. The country’s central bank just cut both the benchmark deposit and lending rate by 25 basis points. In addition, banks will now be allowed to offer loans at a 20% discount from the benchmark rate, versus the 10% discount they were previously permitted. And China’s premier, Wen Jiabao, hinted at various other stimulus measures.
Meanwhile, the region’s other economic giant, India, is pursuing its own stimulus plan following first-quarter GDP growth of just 5.3%, the weakest pace in almost a decade. It’s ramping up several port, railway and road projects, and adding power-generation capacity. And India’s central bank signaled that it will cut borrowing costs to support the economy.
Here in the U.S., the Federal Reserve also seems worried, following two straight months of weak job creation. Janet Yellen, the central bank’s vice chair, recently said that she considers the balance of risks to be tilted toward a weaker economy, and that the labor market appears to be expanding at only a moderate pace.
Given that weakness, I think the door is wide open for additional easing at the next meeting of the Federal Open Market Committee.
Yellen added support for that argument, saying, “If the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective, I am convinced that scope remains for the FOMC to provide further policy accommodation — either through its forward guidance or through additional balance-sheet actions.”
So it’s clear that more stimulus is on the way in Asia and the U.S., but what about the region at the center of the global problems, Europe?
Up until now, Germany has been resisting calls by weaker members of the euro zone for a centralized monetary system. But Chancellor Angela Merkel finally seems to be caving to pressure to fix the ailing European economy.
My guess is that EU leaders will find a way to keep Greece in the union and bail out Spain. That likely means additional spending and a steep decline in the value of the euro currency.
In that scenario, the biggest winners would be hard assets such as gold.
I’m Monty Agarwal for Uncommon Wisdom Daily. Thanks for watching.