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Pound Sterling Gains against Australian Dollar and New Zealand Dollar

February 18, 2016 - Written by Toni Johnson

Global Stocks Volatility Dampening Demand for Commodity Dollars Today

The high-yielding Commodity Dollars have suffered sustained downside in the global currency markets today. The shift out of risk-laden assets has been evidenced by a weak showing from London’s FTSE 100 index, which was trading down on the day by over 0.5% at the time of writing.

The overnight Asian session had been a mixed bag, with Hong Kong’s Hang Seng and Tokyo’s Nikkei 225 recording decent gains, while Shanghai’s SSE Composite, which has been the bellwether for global equities in recent months, shed a small amount.

OECD Reduce Global Growth Forecast

The losses for shares were partly driven by the publication of a highly downbeat report from the Organisation for Economic Co-operation and Development (OECD) which contained a substantial downward revision to the austere organisation’s 2016 global growth forecast from a previous estimate of 3.3%, published just three months ago, to a relatively lowly 3.0%.

The OECD called for the world’s leaders to take urgent steps to alleviate the economic slowdown and to increase levels of investment in their respective economies. The flipside of this call-to-arms from the OECD would be a jettisoning of the ‘austerity’ policies pursued by almost all Western governments in response to the 2007-09 global credit crisis. Anti-austerity governments, such as those in Greece and Portugal, have caused severe friction in the EU, so it is highly unlikely a shift in policy will happen.

The report observed that, ‘with governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability,’ and went on to assert that, ‘the focus should be on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment would boost demand and help support future growth.’

American writer Mark Twain famously noted that, ‘history doesn’t repeat itself, but it does rhyme.’ In this vain, the OECD’s calls for a stepping up of infrastructure spending echoes the aftermath of the Great Depression which followed the Wall Street Crash of October, 1929.

Initially, as bank lending contracted, policymakers of the time vigorously perused ‘sound money’ policies. It was only when Franklin D. Roosevelt introduced widespread government spending on projects including the Hoover Dam via his ‘New Deal’ programme that the global economy began to emerge from the shadows. Given the sophisticated nature of the global economy in 2015, policymakers may not be so willing to adopt growth-friendly policies this time around, especially at the expense of watching the deficits that have fought to shrink expand again.
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