Low interest rates driving market fluctuations

Interest rate moves driving financial markets fluctuations

It was a perfect storm Friday on global financial markets. The US stock indices dropped by around 1.5%, the Canadian dollar dropped almost one cent to about 79 US cents while the Euro dropped by 2 cents to US$1.09. All this happened on the back of the strong US jobs report (295,000 jobs added in February) and growing expectations that a rate hike in the USA will happen soon.

The weakness of Canadian and European currencies seems clear: there are no short-term plans in Canada and the EU to raise interest rates. To the contrary, the European Central Bank is starting a new quantitative easing program and will launch its 60 billion euro-a-month bond purchases next Monday, March 9. Canadian economic indicators are not bright either. Our economy grew 2.4% in the fourth quarter of 2014, down from 3.2% in the third quarter, and generated an average of 10,000 new jobs a month in 2014, or roughly 3,500 less than it should at this stage in the recovery.

Commodity prices are not getting any support so far from the improving US economy as many other regions of the world continue to struggle. The Chinese GDP may grow by just 7% this year, the slowest rate of growth in the past 25 years or so, which may have contributed to a 4.5% drop in the price of iron ore today. Chinese economic slowing may spell continued struggles for the Canadian economy and dollar.

By: Ukrainian Credit Union Limited