With 20 central banks indicating they may lower interest rates even further, a world economic slowdown underway, and bellwether copper prices collapsing, U.S. multinational companies (and their stock prices) will not escape the malaise facing the global economy.
Central Banks Concerned Regarding Global Economic Slowdown?
The mainstream media will have you believe central banks across the global economy are slashing their benchmark interest rates. They are right. So far, more than 20 central banks have slashed their benchmark interest rate.
And a majority of the banks that have reduced their interest rates have given indication they might reduce interest rates even further, as all have cited softness in their already weak economies.
Take the Reserve Bank of Australia. It has lowered its benchmark interest rates to historically low levels and has warned it might reduce them further. It said, “In Australia, the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year. The economy is likely to be operating with a degree of spare capacity for some time yet…” (Source: Reserve Bank of Australia, March 3, 2015.) That means more rate cuts are ahead for Australia.
More Evidence of Misery in the Global Economy
China is the latest world economy to enter a slow-growth phase. Data coming out of China is dismal to say the least.
In February, home prices in 70 cities in the Chinese economy declined 5.7% from February 2014. This was the fastest decline on record! (Source: Reuters, March 18, 2015.) Home prices in China have been declining for six consecutive months now.
Canada’s economy is weakening, too. In January, Canada’s wholesale sales (sales done at the wholesale level that act as a leading indicator of consumer spending) declined 3.1% from the previous month—the biggest month-over-month decline in wholesale sales since January of 2009! (Source: Statistics Canada web site, last accessed March 18, 2015.)
The eurozone remains in trouble, with Germany the only bright spot. Not much has changed in the Japanese economy; it’s still in recession.
Indicators Flashing Warning Signals; Global Economic Slump Ahead
Economic indicators I regularly follow are suggesting the global economic slowdown is gaining momentum. Consider the chart of copper prices below. Looking at the prices of copper, it seems investors are pricing in a worldwide economic slowdown like the one we saw in 2009. Scary!
Chart courtesy of www.StockCharts.com
Copper is an industrial metal. If copper prices decline, it means demand for the metal is declining and the industrial complex across the globe is slowing.
U.S. Economy and the Stock Market Safe?
If world economies are under increasing economic scrutiny, it would be foolish to believe the U.S. economy will grow.
As for the stock market, as I have harped over and over again in these pages: Companies on the key stock indices have a global presence. If the global economic activity slows down, revenue and profits at American multinational companies (about half of which are included in the S&P 500) will see their share prices impacted.
Investors are too complacent. They are not seeing the signs of misery ahead.