Central banks’ club of caution grows as bad news piles up

Bloomberg

Three months since the Federal Reserve put US interest rates on a prolonged pause, more and more central bankers around the world are getting nervous about tightening monetary policy.
Policy makers across Asia, Europe and North America shifted their tones, with Sweden and Canada among them. The caution came in a week of fresh pessimism on the global outlook as trade and electoral uncertainties linger.

WAITING GAMES
This week alone, the Bank of Japan reinforced its easy stance with a pledge to keep interest rates at rock bottom levels through at least spring of 2020 and the Riksbank backtracked on plans to hike. Bank of Canada officials ditched a rate-hike bias. Ukraine, with Europe’s highest borrowing costs, cut its main rate half a percentage point to 17.5 percent. Indonesia left its benchmark unchanged.
The Federal Reserve is eyeing a slide in inflation, but US rate-cut calls seem a little overdone. That’s also true elsewhere. A sharp inflation slowdown alone can’t push Australia to a cut, Bloomberg Economics argues. A BE study of neutral rates globally shows that the first quarter should be the low point for 2019 growth as stimulus sets in.
For those who think they can do better, the UK has started its search for a new Bank of England governor to replace Mark Carney.

HEADWINDS BLOWING
Even if data from the US and China are reassuring, a slew of bad news — such as plunging trade volumes — makes it hard to see how a global upturn can take hold just yet. Japan’s factory output contracted out of the blue, South Korea’s economy unexpectedly shrank the most since 2008, sentiment wobbled in Germany and France, and Australia’s inflation shock rattled investors and economists. And Sri Lanka suffered a renewed blow to its critical tourism industry in the aftermath of tragic attacks.
US stocks may have hit a record high this week, but it’s not all plain sailing for companies. 3M, a maker of everything from health-care supplies to industrial products, cut its outlook after a “disappointing start to the year.”
Bloomberg Economics explores how South Korea’s misses on structural policies are endangering prosperity.

TRADE PROMISES
China will host US negotiators in a new round of trade negotiations in Beijing next week, though even as talk of a truce continues, Asia’s trade is still hurting. Aggravating the tensions: The White House’s top economist compares tariffs to a bitter but necessary medicine to fix global trade ailments, while the president ramped up his Twitter war on the European Union. And Japan’s finance minister pushed back on US attempts to include the yen in trade talks.
An unlikely trade-war winner is China’s $13 trillion bond market. China was more focussed this week on rebooting its image on another front, hosting world leaders for a Belt and Road summit.

ELECTORAL STRESS
Electoral tensions are affecting a growing lot of economies, including in Sri Lanka where there’s government jostling in the aftermath of the terrorist attacks. Post-election gridlock is holding back the Thai baht, and a lack of resolution in Indonesia’s vote threatens to inhibit Southeast Asia’s biggest economy. Spain is bracing for deadlock in elections, and
six weeks of voting in the world’s biggest democracy are in full swing.