Are global market trends pointing to a recession?

2016 has been one year that has seen a mixed reaction in both the commodities and the stocks market since the beginning in January. Stock prices have been fluctuating due to the uncertainty in the market as to the effect of the slowing growth in the Chinese economy. Moreover, the falling oil prices have triggered jitters in the global markets with a potential recession being feared to be in the looming. As oil dips and stock prices keep randomly rising and falling, charts at Global Intergold show that gold have been enjoying a steady growth in its prices over the same period of time.

Many investors have been going back to gold in order to save the value of their wealth in the light of the uncertainty in the markets. This has resulted to a rally in the price of gold, making it the best performing asset in 2016; having gained about 20% from January to date. With the Fed expected to delay a rate hike after the last one in December 2015, analysts forecast that gold prices will keep rising in the interim. The Fed was expected to raise its benchmark rate in March but the chairperson Ms. Janet Yellen in her statement to the congress last month said that they were still monitoring labor data, inflation and economic developments in China before making the decision as to whether raise the rates or not. With this delay in rate hike, the uncertainty in the market is also extended hence giving gold a chance to keep shining among other asset classes.

However, the fears for a potential recession in the US might be fading away going by the recent data from the United States Department of Labour. The recently released data showed a growth in new jobs created in February compared to those created in January this year at 242,000 and 151,000 respectively. The growth in the employment numbers was however not accompanied by an increase in the average wage. Nevertheless, analysts say that this is a good sign that the US is on the right track and it is shrugging off the effect of the slowing Chinese growth and evading the probable recession

On the other hand, in the Eurozone the European Central Bank announced this month through its President Mr. Mario Draghi that it was expanding its stimulus package. This involves lowering its benchmark lending rate to zero percent and lowering the rate for the money put in parking at the European Central Bank by commercial bank to -0.4%. These moves are meant to boost liquidity in the economy and stimulate higher expenditure and result in a rise in inflation. Mario Draghi said that there are weaknesses in spending across the Eurozone which are threating to result into deflation and eventually drag the region into a recession.

By having the rates for deposits at the European central bank in the negative territory, the bank is trying to discourage the commercial banks from parking money with it but rather have the money and lend it to borrowers at low rates. This is then expected to increase the purchasing power of the people who will increase their demand for goods and services and hence resulting to rice in commodity prices; thereby evading a potential deflation. How well this new strategy will work is yet to be defined. However, with another stimulus package expansion plan of increasing the European Central Bank’s bond purchase from $60 billion to $80 billion, the combined effect might be effective in re-igniting growth in the Eurozone economic block.

Other central banks are also facing the same uncertainty that is all over the world. The Japanese central bank revised their benchmark rates to the negative territory earlier on this year. Others who are also in the same negative interest rates are Denmark, Switzerland and Sweden. Canada is expected to follow suit and the trend will most likely catch up with other central banks across the developed world as they struggle to avoid the forecasted recession. The goal remains the same across all the central banks; which are to increase liquidity and boost consumer and investment expenditure in the short-run within their economies.

As the stock market continue being in a frenzy driven by the investor fear sentiments, we expect that central banks will continue being clueless of how to tame the looming recession hence keep lowering their interest rates into the negative territory. Wise investors will accumulate more gold as they run to protect their wealth from losing value; and governments will have to increase their power over the people in order to maintain calm as the economic tides hit. Ultimately the solution will be found in promoting entrepreneurship and free market economies where the forces of demand and supply will bring the economies to their equilibrium points.