Stock markets had a very good week – for all the wrong reasons. Economic data reports confirmed that 2018’s US economic expansion is rapidly decelerating towards outright stagnation as companies appear to batten down the hatches in anticipation of an all-out trade war, not only with China but now also with neighbour Mexico. Central banks, which until recently had been firmly on an interest hiking path, downgraded their near term growth forecasts and assured capital markets that they are willing to consider reversing monetary policy fully and to counter slowing growth with rate cuts or even a restart of QE.
The reason stock markets rallied on the bad economic news was that the central bank announcements indicated to them that monetary policy stimulus would once again come to support them – as it did during most of the 10 years since the global financial crisis (this is what is referred to as the ‘central bank put’).
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