ANZ Morning Brief: Blue skies ahead?

BLUE SKIES AHEAD? Markets have started the year on a reasonably positive note. Linked to this are positive signs from China , the side-stepping of the US fiscal crevasse, with the Japanese government announcing ¥10.3tr in stimulus measures thrown in for good measure. There are casualties from this financial market exuberance and we sympathise with NZ exporters battling the high NZD. There are hopes these green financial market shoots will translate into sustained global recovery, but there have been false dawns before. Roughly 12 months ago the ECB’s Draghi pointed to “tentative signs of stabilization of economic activity” before bowing to a rate cut in July, and pledges to do “whatever it takes” to save the euro, via the OMT program to cap surging bond yields in parts of the Eurozone. With a large debt overhang to contend with, and the Eurozone economy mired in recession with the unemployment rate at a record high, it is hard to see that the ECB could invent anything similar to an OMT for the real economy. The hope is that better financial-market conditions provide a more supportive backdrop, providing a “window of opportunity” in which the necessary structural reforms to increase flexibility and boost growth prospects can take place. Picking the “right” time to undergo reform is nearly as tricky as implementing them, and sometimes the longer the delay the larger the cost of eventual adjustment.