24-11-2014 17:00

Weaker growth in Japan and China as well as signs of increased stimulus measures by the ECB characterised the markets last week.

Last Monday, very weak Japanese GDP figures were released. Markets had expected an annualised growth rate of 2.2 per cent but the result was -1.6 per cent. A snap election in December is being discussed and the government intends to postpone the announced VAT hike for 1.5 years. This led to the market regaining much of what it had lost on the Monday. The Bank of Japan continues its extremely expansionary monetary policy, which is affecting the currency, among other things.

The US Federal Reserve minutes from the latest interest-rate meeting stated that it considered removing the words "foreseeable future" in its statement on how long interest rates should be kept low. However, the Fed chose to retain the wording and reiterated that the labour market and inflation would determine when and at what pace interest rates would begin to rise again. Last week's inflation rate was 1.7 per cent, slightly weaker than the Fed's target but in line with expectations.

Indications of fiscal stimulus measures by the ECB
Mario Draghi signalled that more support is expected as regards the ECB's monetary stimulus measures. The ECB's next meeting is on 4 December and expectations have risen that there will be further support measures from the ECB in the form of quantitative easing following Mr Draghi's speech.

"However, this is not enough. We have talked about a combination of monetary and fiscal policies for some time, and at the weekend we received indications that fiscal stimulus measures would be in the form of infrastructure investments of up to EUR 300 billion or around 3 per cent of eurozone GDP. It is said that the European Commission and Jean Claude Juncker have talked about using investment funds, among other things, to pursue a more expansionary fiscal policy in Europe to attain a more demand-driven stimulus. These indications are in line with what we were anticipating and necessary for a more positive view of Europe," says Jerker Söderstrom, investment strategist at Swedbank Research.

The Purchasing Managers' Index from China was weaker than expected, exactly 50, which is the borderline for industrial growth. The Chinese central bank surprisingly lowered the interest rate from 6% to 5.6%, which is seen as a signal that there are problems with falling house prices and that growth is not taking off by Chinese standards. The growth target of 7.5% will not be reached for the first time in a long time, but the central bank also stated that it is more comfortable with a lower growth rate.

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