Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - Scan.co.uk vs Overclockers.co.uk UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Increased Liquidity Boosts Economic Recovery Hopes

Economics / Economic Recovery Sep 07, 2009 - 02:00 AM GMT

By: Lloyds_TSB

Economics

Best Financial Markets Analysis ArticleGlobal economic recovery gets underway - A global increase in liquidity has been underway in an attempt to kick start economic recovery ever since the depth of the financial crisis was understood. It appears to be working. A range of countries have recorded a rise in economic growth in Q2, including Germany, France and Japan, see chart a. For many of them, this was the first rise in economic activity in over a year, after sharp consecutive quarterly declines.


However, the US and the UK recorded falls in economic activity in Q2. It is also noticeable that emerging market economies are bouncing back more quickly than developed economies, with annual gdp in Q2 up by 7.9% in China, by 6.1% in India and quarterly increases in Singapore of 20% and 9.7% in South Korea. In short, there are solid signs that conventional and unconventional policy loosening is helping to foster a global economic recovery.

US and UK economies still in recession but set to expand in Q3…

The predominant message from recent economic data in the US and the UK is that both economies are likely to exit recession in Q3. Focusing just on the UK, there was a rise in the services Purchasing Managers Index (PMI) for July to 54.1, up for the fourth month in succession and the highest level since September 2007. Although the manufacturing PMI fell from 50.2 to 49.7, and the construction PMI was 47.7 (up from 47.0 in June), the weighted average of the three PMI’s (based on their shares of gdp) was 53.7 in July and so suggests that the economy will expand in Q3, see chart b. A similar story can be told for the US, albeit less based on the services ISM than on the manufacturing ISM and other indicators.

...aided by injections of liquidity from the public sector, which is also boosting financial markets…

It is also increasingly evident, however, that the increase in public sector liquidity is not only helping to restart economic growth but is also boosting financial markets. Using the UK as an example, since quantitative easing began in March 2009, financial market activity has generally shown a steep rise. Take the FTSE 100, which is up by about 40% from its March low, see chart c. Is it just a coincidence that the rise started from the time that the Bank of England (and Fed) initiated quantitative easing (QE)? Sterling corporate bond issuance has also surged, and the yield on investment grade bonds has fallen by about 2 percentage points, to 6% or so since QE. Government bond yields have also fallen back recently, as QE has put a rising share of the amount of gilts outstanding into the Bank of England’s hands, after rising initially on worries about price inflation, see chart d. Incidentally, the QE programme may also explain the seeming conundrum of rising equity prices and falling or low gilt yields.

Taken together, or even separately, these trends suggest that investors have switched cash from selling gilts to the Bank of England into equities and bonds. This has enabled corporate issuers in these markets to take advantage of the increased demand to sell new equity and bonds. This is of course good news for the economy. It implies fewer bankruptcies, less financial problems and more investment than otherwise (less cutbacks in spending), meaning lower unemployment and so less economic distress. To that extent, it means that QE is helping economic recovery in a broader sense. However, as the chart shows, some of the borrowing by companies from the capital markets is being used to repay bank loans, see chart f. It seems therefore that recent debt issuance is predominantly a balance sheet restructuring exercise by firms – vital though that may be – rather than a way of raising finance to boost investment spending, as shown by the record fall of 10.4% in business investment in Q2.

…leading to more willingness to take risks, indicating a rise in confidence and lower financial market stress…

Financial market confidence is also being reflected in a rise in the willingness of participants to invest in riskier assets. Our Lloyds TSB Corporate Markets Risk Appetite Index (RAI) - which measures returns and volatility on various asset classes - shows that there has been such a sharp rise in the willingness to place funds in higher yielding instruments that the index has fallen into negative territory. (A fall in the index represents a rise in risk appetite). A negative outcome for the index simply means that the willingness to get out of safe, lower yielding assets, into riskier more volatile but higher yielding assets, is the highest it has been since July 2007. In short, financial market stress has fallen sharply since QE was initiated – also one of its aims.

…but the central bank may still have to maintain its current loose monetary stance to ensure economic recovery

But the Governor of the Bank of England has said that the main aim of QE is to increase M4 money supply, and this has not happened – or, more accurately, it has not happened yet, and could hence require more QE than the £175bn so far announced, to ensure that it does. Debt repayment or deleveraging by households and companies still seems to be occurring, however, in spite of QE. Households repaid consumer debt in July, the first time this has happened since the records began to be kept on this basis in 1993. Companies repaid debt as well, amounting to £8.4bn in July, a fall of 1.7% in bank lending to firms that month and the biggest decline since 1997.

Trevor Williams, Chief Economist, Corporate Markets

For more information: Emile Abu-Shakra Manager, Media Relations Lloyds TSB Group Media Relations Tel 020 7356 1878 http://www.lloydstsbcorporatemarkets.com/

Lloyds TSB Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules