During a press conference in Shanghai at the kickoff of the G-20 meeting, Zhou Xiaochuan, governor of the People’s Bank of China, insisted that he has both the tools and room to maneuver should the Chinese economy require more monetary policy accommodation. The comments came today after China’s central bank issued a statement redefining its policy stance as “prudent with a slight easing bias” — a more dovish tone than prior communications had indicated. One place where PBOC action appears to be working already is China’s property markets. Headline housing index figures released for January by the National Bureau of Statistics registered the fourth consecutive year-over-year expansion, rising by 2.05 percent versus the same month in 2015.
Japanese inflation disappoints. In another blow to Bank of Japan policymakers, January consumer-price-inflation data released by the Japanese Statistics Bureau registered an annualized 0 percent in January. Despite a modest rebound in Tokyo-specific February prices, the moribund demand signals combined with weaker-than-hoped-for trade figures represent a high hurdle fo BOJ Governor Haruhiko Kuroda who recently pledged to take more action if fundamentals failed to improve.
HP to make further cuts. While announcing quarterly results for the final three months of 2015, HP, the computer and printer company that split with enterprise softwar and service provider Hewlett–Packer Enterprises last year, unveiled new cost-cutting measures as personal computer sales continue to slide. In the statement, HP CEO Dion Weisler revealed plans to lay off 3,000 workers in the near-term, after paring the company’s headcount by more than 50,000 in recent years.
US GDP revised higher. Gross Domestic Product figures exceeded consensus forecasts after the Commerce Department revised headline growth for the fourth quarter to annualized 1 percent versus a prior 0.7. Despite a lowered total for consumer spending during the period, improvements in inventories and external trade more than offset the shortfall.
Hilton to spin off properties in REIT. On Friday Hotel giant Hilton Worldwide announced plans to separate 70 properties into a real estate investment trust (REIT) as well as spinoff its timeshare division as public companies. Hilton management assert that the move will benefit shareholders by maximizing valuation for the assets being floated.
Portfolio Perspective: The Limits of Monetary Policy
The overarching concern among global investors is that central banks are running out of firepower. Investors all over the world are concerned about the ability of global central banks to continue to play such a large part with financial markets. As a whole, they are losing credibility with investors — and that credibility is key to market confidence.
The Federal Reserve’s decision to raise rates in December, and Janet Yellen saying they have yet to study or research negative rates, has investors wondering if the Fed understands the workings of the real economy. Investors have not forgotten that one of the Fed’s key goals of expansive policy was to pump money back into the economy – and to encourage business to invest more. However, most used their cash for share buybacks, and corporate cash hoards remain a big contributor to the global savings excess that continues to unbalance the world economy.
In Japan, meanwhile, the deflationary mentality is so deepseated that policies seem to have less and less impact. The Bank of Japan moved into negative rates earlier this year. When this happened, the yen surged and tightened financial conditions instead of having any expansionary impact. In 2012, Mario Draghi, president of the European Central Bank, committed to “whatever it takes” to preserve the euro zone. Four years later, his words no longer have an effect as ECB leaders are constantly in disagreement and there has been limited material progress.
The market and investors are still weary of the People’s Bank of China. The financial system is still immature and central bankers are still navigating how to both execute and communicate policy moves effectively. However, authorities still have the fiscal capacity to stabilize the banking system, and their rhetoric still has influence over China’s currency market.
The world’s leading central banks still have their most difficult hurdle in managing the orderly decline in the price of assets that have been artificially inflated by their expansive policies. Investors worry that there is little scope or appetite for fiscal policy. Some economists suggest financing a fiscal stimulus with yet more debt, focusing on infrastructure assets and simpler tax codes. However, public debt in the U.S. rose from 64 percent of gross domestic product in 2008 to 104 percent by 2015; in Europe it rose from 66 percent to 93 percent and in Japan, from 176 percent to 237 percent.
Central banks have done their bit. It is now time for governments to be bolder.
Ignacio Pakciarz is CEO and a founding partner of BigSur Partners, a global multifamily office based in Miami.
