Speaking softly. Fears about the inability of the US Federal Reserve to help the US economy should it stumble in coming months is why Fed chair Janet Yellen wants the Fed to proceed cautiously with interest rate increases. In a speech in New York overnight that had attracted attention from around the world, Yellen said the US central bank would “proceed cautiously” in lifting rates — which investors took as confirming only one rate rise towards the end of the year. US shares rose, the Aussie dollar rose, gold jumped, copper fell, as did oil. Why, it might help soothe those frazzled local investors fretting over rising bad debts among our big banks. She focused on risks still stewing in China and the oil markets as she argued in a New York address for the central bank to move carefully as it considers when to lift rates again. She also said the outlook for the US economy remains mixed — jobs are doing well, but inflation remains uncertain and well below the Fed’s 2% target (and has been for four years). In short, the economy remains vulnerable:

“To the extent that recent financial market turbulence signals an increased chance of a further slowing of growth abroad, oil prices could resume falling, and the dollar could start rising again … And if foreign developments were to adversely affect the U.S. economy by more than I expect, then the pace of labor market improvement would probably be slower, which would also tend to restrain growth in both wages and prices.”

What was interesting from her comments is that she and the Fed see falling oil prices as a problem, not a benefit for markets and the economy (not to mention consumers). That is not what many economists here and offshore have been assuring us since oil prices started falling in mid-2014. — Glenn Dyer

What ‘ave we here? Gold prices went for a run overnight thanks to Yellen the dove, but the Aussie dollar also jumped, so the 1% rise in gold was offset by the 1% rise in the Aussie. But here’s a market puzzle that any gold price rise can’t resolve: in 2015, Saint Barbara Mines was the hottest stock in the ASX 300 — the shares jumping from 10.5 cents in January of last year to $1.43 at the end of the year, a rise of 1250% — and then they surged onwards and upwards to $2.68 late last Tuesday afternoon, when they hit a wall and then collapsed, falling 28% up to the close of trading yesterday at $1.915. That’s a fall of just over 76 cents. The weakening gold price and Australian dollar can’t be blamed, as they have nearly cancelled each other out in the past few days — gold is at a four-week low, falling 2.6% last week, and the Aussie dollar fell by around 1%, but not 28%. The slump was made to look even odder by the news yesterday that ratings group Standard & Poor’s had upgraded the company’s credit rating from B minus to B, with a stable outlook, which is no mean achievement in the midst of the great commodities slump (which has ensnared some of the world’s biggest gold companies as well and oil, gas, iron ore, copper and other miners). And so far, not a gentle inquiry from the ASX. — Glenn Dyer

Traditional Japan. On the day that Japanese retail sales in February posted their biggest monthly contraction since April 2014 (when the government raised the sales tax for the first time 17 years, from 5% to 8%) comes news that the tax will rise by another 2% this October. Figures released yesterday showed retail sales fell 2.3% month-on-month, down from a revised 0.4% fall (previously a fall 1.1%) in January. The 2% increase was supposed to happen in October of last year but was postponed by the government as growth struggled. The April 2014 increase resulted in a 13.4% slump in retail sales in May of that year, and the economy has struggled to regain its growth momentum since, leading the Bank of Japan to cut interest rates to negative levels and expand its huge quantitative easing program. In fact, that program has basically flopped if the retail sales data are any guide, not to mention inflation, which refuses to move very far from zero.

Prime Minister Shinzo Abe revealed his intention to lift the tax this year yesterday when parliament approved Japan’s biggest national budget of US$820 billion. Abe gave himself an out by saying the rise would go ahead “unless there is a shock to the economy on the scale of the Lehman crisis or a massive earthquake”. And a final madness — with the government issuing bonds with negative interest rates now, there’s a belief that the government will ’save’ around US$700 million in interest payments that no longer have to be made. With an election in the offing in Japan, some members of the Abe government want that money spent “stimulating” the economy — as usual that will be in government-held seats and no doubt be spent on new roads and bridges — which is the traditional Japanese path to political rorting and corruption. — Glenn Dyer

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Peter Fray
Peter Fray
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