The difference in time between the effects that ‘winners’ have on the economy, and the quicker impacts ‘losers’ have, was focused on by Chris Justham, Relationship Manager for Seven investment Management, when he joined Zak Mir and Mike Ingram on the Tip TV Finance Show to discuss central banks, oil and inflation.
Key Points:
Justham noted that forward guidance used by central banks to ease tension in markets, such as the Fed ahead of tonight’s assumed interest rate hike, has actually caused the opposite and investors have become frenzied.
Solid data in Europe didn’t deem the action which Draghi promoted, and Justham found it difficult to understand how average data was meant to cause mass easing movements from the ECB. Thus he rose the question of market fused with forward guidance vs reality.
In terms of Oil, Justham outlined that the ‘losers’ as a result of falling oil prices have made immediate impacts on the economy such as job cuts, whereas, firms benefiting from lower oil prices, such as airliners, will take years for these positive effects to make their way into markets.
He concluded on the 3 key contributors to economic growth, which he expressed to be central bank and government policy, economic hard data, and confidence in both consumers and businesses. The forward guidance noted earlier by Justham has resulted in people worrying about markets, and thus the confidence part of causing economic growth hasn’t been met as shown by it failing to feed through to retail sales.