Feb 5, 2016 | Investment Advice

International News (Issue 385) – 5 February 2016

More concerns on global growth seemed to emerge this week.

As I flagged above, US manufacturing activity remained subdued in January and service sector growth also eased back.

Employment remains sound, consumers keep saving and housing is in good shape. But investment markets react to incremental news-flow, and this slight softening in the outlook for the US is indeed worth paying attention to since the US central bank has thrown the kitchen sink at re-igniting growth this past 6 years, and yet we still have little cause to believe deflation isn’t still lurking.

Guys, the essence of every fear held by every economist, strategist, fund manager and investment-market watcher right now is growth.

If central banks from the US, UK, Japan and Europe have collectively multiplied the money base of their economies several fold only to achieve a quarter or two of barely trend growth, what happens when the stimulus wanes?

If negative interest rates (as offered in many parts of Europe and now Japan) can’t elicit borrowing and investment in the economy, what will?

And further, if growth is slowing and returns are declining, will we begin to see the effects of a declining asset price environment?

The risks here are surely emerging, and this is why we continue to forecast a lower share-market in 2016.

Chinese manufacturing activity remained weak in January, and consumption was broadly the same as the end of 2015. There is some hope that we see some positive policy on interest rates this weekend ahead of the Chinese New Year holiday.

Touch wood.

The fall in the Chinese currency continues to be monitored, but the broader softness from that countries economy is already well and truly having its effect on countries around it.

Korea’s currency this week fell to a 6-year low after its January export figure fell 18.5% year-on-year, and to the worst growth rate since the GFC.

When you think of Korea you think of technology, consumer goods, autos and engineering. So pretty much everything. And they flog it everywhere.

So it’s not ideal.

The Bank of England this week lowered their expectation for economic growth. Another chink in the outlook.

Anyways, enough. The environment is becoming trickier for growth, so we continue to advocate for quality and defensiveness where at all possible.

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