Australian remains better placed than the US to respond to a new global slowdown.
Fears about that slow down sparked a wave of selling on Thursday night and Friday in Europe, the US and Asia.
Stockmarkets falling 3% or more in Europe and then over 4% in the US in the biggest sell off for two years.
The Dow fell 500 points, with a whack of that happening in the final minutes to make it the worst day since the dark times of late 2008 after Lehman Brothers collapsed.
Oil fell well under $US870 a barrel in New York, copper slumped, even gold and silver fell, as even these claimed ‘safe havens’ at times of stress couldn’t escape to surge of risk aversion.
The Australian dollar under $US1.05, it’s lost 5c in the past four trading days. The US dollar has jumped across the board.
The falls came as central bank interventions in Europe and Japan failed to soothe investors’ concerns over economic growth and the eurozone debt crisis.
The European Central Bank bought government bonds for the first time since March, just hours after the Bank of Japan intervened in currency markets to halt the rise of the yen and the Turkish central bank cut rates to an all time low."
And a day earlier the Swiss central bank cut rates to zero to try and weaken the franc.
This instability means the Reserve Bank will not be rate rising soon.
Unlike forecasts by economists like Bill Evans of Westpac, the RBA will cut rates not because of a weak domestic environment, but because the external outlook has turned so gloomy that it needs to start protecting the Australian economy against a global crunch.
And the first place to look for that sort of pressure is the US where tonight sees the July jobs and unemployment data released for the US.
A repeat of the terrible 18,000 net jobs reported for June (or revisions that eliminate them) will send US and European markets and sentiment plunging.
A good report will spark a relief rally that will quickly run out of puff, as Monday’s rebound did.
Already American economists and the Fed see the US economy trending lower than it was at this time a year ago.
US economist, Dave Rosenberg wrote yesterday "It is evident that we will be going into another recession with the levels of output, employment and income all lower now than they were prior to the last contraction phase."
The July jobs report from the Bureau of Labor Statistics now looms large, as it did a month ago.
US markets are looking for less than 100,000 new jobs (the estimate for June was 150,000 to 180,000, which was badly out of whack). The jobless rate is expected to remain at 9.2%.
(75,000 new jobs is the latest forecast, according to US economist surveys).
The US economy needs to add about 110,000 jobs a month just to keep pace with population growth and to keep the unemployment rate from rising.
And it needs to create 200,000 or 300,000 or more every month to bring the jobless rate down noticeably.
It has failed miserably.
A week ago it was the first estimate of second quarter growth and the dramatic revisions for Q1 GPD (1.9% annual down to 0.4%, or 0.1% quarter on quarter, which is irrelevant).
That stunned markets and investors, not to mention economists and others with an interest.
A bad jobs report with actual losses will have the same impact.
A year ago, the US economy rebounded from the mid year sag, and that’s what everyone is hoping will be repeated in 2011, including those in Washington who thought the debt ceiling deal was done and dusted.
It isn’t, it’s based on growth this year of 3.1%, so far it’s running at 2.3% and easing and should that continue, the debt ceiling will be reached more quickly than previously though and the deficit will be higher.
The idea of a cut in spending will prove to be as illusory as ever and the US will be back to the politics of debt and deficit for years to come.
The US and Europe in particular are worrying the RBA more and more.
The RBA’s latest thinking on our economy and the rest of the world came at 11.30 am today in the third Statement of Monetary Policy.
It carried updated inflation and growth forecasts for this year, 2012 and rough estimates for 2013. Inflation was up, growth down, as many had expected.
The early data for June shows sluggish demand, but not as dire as in the US.
No one in Australia is asking the question, if the US and Europe slow, dragging the rest of the world economy with them, where will any needed stimulus come from.
Australia (China, New Zealand and perhaps the eurozone) have some room to trim rates to soften the impact of any slowdown.
The US, Japan and UK have no room, and in reality the ECB can reverse its two ill-advised rate rises of this year very quickly, but not achieve
