Forward Move For Global Equities Sees Aussie and Kiwi Dollars Gain

Published: Tuesday, 22 May 2012 09:00 BST - Written by John Cameron

STORY LINK Forward Move For Global Equities Sees Aussie and Kiwi Dollars Gain

Europe’s stock markets enjoyed a rare day of gains during yesterday’s session, with London’s FTSE 100 index closing up by 0.70%, Paris’s Cac 40 registering a positive move of 0.64% and Frankfurt’s Dax up by 0.95%. Many analysts have taken the view that the move higher marked a technical correction following last week’s sustained losses for equities. However, there appeared to be more to the forward move than this; it appears more likely that the positive showing for shares came as a response to comments from global policy-makers over the weekend. The biggest hitter of them all, US President Barack Obama, led the way on Sunday with his ‘round-up’ comments following the G8 summit held at Camp David in the States. Obama used the platform to urge European nations to place added focus on the creation of jobs and economic growth moving forward. China’s leader Wen Jiabao echoed Obama’s comments when he spoke during Monday’s Asian session. Wen stated that China ‘should continue to implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth.’ This hints that Asia’s leading economic power is relaxing its anti-inflationary stance of recent times in an attempt to boost demand.

The current global economic situation increasingly resembles that of the 1920s and 1930s, when policy-makers of the time attempted to counter a massive worldwide slowdown in economic activity by concentrating on the principle of ‘sound money’ – a euphemism for ‘balancing the books’ via the introduction of austerity measures, akin to the policies which we have seen over the past couple of years. It was only when ‘sound money’ was abandoned in favour of Roosevelt’s ‘New Deal’ of expansionary measures in the US that the world began to emerge from its financial meltdown.

Stock market participants seem to have particularly long memories. The improvement in appetite for risk caused the GBP AUD exchange rate to pullback from the 1.61s towards the 1.6000 level once more. The Kiwi Dollar showed similar price action on the day, with the GBP NZD rate dropping away from the 2.1000 level which it visited at the end of last week to re-visit the 2.0700s once again.

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