Investors disappointed but remain optimistic
Investors have been disappointed as the US reported weak second-quarter GDP Data, oil prices have tumbled again, and the Bank of Japan tried to stimulate the economy but that failed to excite markets, according to Instreet Investment.
Instreet Investment managing director, George Lucas, said despite investors being disappointed, there were reasons to remain optimistic.
When the Bank of Japan (BoJ) decided not to cut the interest rate it paid on excess reserves, to target a more rapid increase in Japan's monetary base, the Yen climbed to its highest level against the US dollar in three weeks, while Japanese government bond prices sank, Lucas said.
The BoJ also increased purchases to equity-linked exchange traded funds (ETF), however investors expected more, as that would attempt to raise inflation towards its target of two per cent. Despite that, the EFT purchase announcement helped equity markets rebound, even though the Yen strengthened.
He found that in the US, the GDP disappointed investors as it grew by 1.2 per cent in quarter two, while consumption significantly increased and net exports boosted growth.
His analysis also found that contractions were reported in business, residential investment, government expenditure and investories.
But when investors looked ahead to the second half of the year, there was some reason to be optimistic. The mining-related investment drag would fade, residential investment should recover and net exports should benefit from the stabilisation of the US dollar.
In addition to that, he was also expecting that non-farm payrolls (due out on Friday) would increase by 190,000.
"Which should be enough to bring the unemployment rate back down to 4.8 per cent," Lucas said
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