There had been substantial anxiety in capital markets community about the day the US central bank would announce the reversal of its monetary policy of quantitative easing (QE) towards quantitative tightening (QT). Well, the day came and went, and it has still been a good week for investors. Stock markets remained positive and bond markets remained calm.
Earlier in the week, the proliferation of threatening language between US president Donald and ‘Rocket Man’ Kim had been ignored by markets. Likewise, Theresa May’s Brexit speech to the EU in Florence on Friday was highly anticipated, but despite disappointing on the side of detail markets took it in their stride.
It almost seems as if all the big worry points of the past have suddenly lost their relevance and all capital market forces care about is consistency of central bank messaging and action, current macro-economic data and the next round of corporate earnings results.
True, economic data paints an encouraging picture, especially across the Eurozone and even the UK had some strong retail sales numbers to report for August, despite inflation climbing even further. But entering uncharted monetary policy territory as the US Fed for the first time in history unwinds QE by cancelling money it created (‘printed’) some years ago, or hearing how two nuclear armed nations threaten each other with total destruction may also point to the proverbial ‘quiet before the storm’.
As our regular readers know, we stick to the facts first and foremost, but will take market sensitivities into account, as they determine how quickly directional changes can occur.
At the moment both feel relatively reassuring. The major global economic areas continue to expand – some more dynamically, some less – but still in unison. Bond yields have recently recovered again as the demand for government bonds over war fears reduced.
