It must be a strange experience, being a central banker these days. Ever since the financial crisis of more than a decade ago, central banks have had to reconcile two opposing goals — both of them self-imposed.
Central banks are trying to prolong the decade-old bull market, but it looks like instead of reassuring investors, this makes them nervous.
How afraid should investors be of the end of quantitative easing? Judging by recent comments, but also by the markets’ reaction until now, not too afraid.
With summer over, Italy is back at the forefront of the news – this time not as a holiday destination but in its other capacity, as chief source of market worries. The way things are going, the worries are only just beginning.
When the bank of central banks warns about financial stability, you have to take notice — even if the warning comes in the Bank for International Settlements usually dry, academic style.
The BIS recently published a paper about the effect of prolonged interest rates on financial stability, and it makes worrying reading. (However, as most people are on holidays in August, unless they are reading it on the beach it will largely go unnoticed).
Speeches and releases from various European Central Bank officials don’t make the best summer reading, that’s for sure. But it might be a good idea to go through a couple of recent ones, which give a hint of what the future might bring.
If Britain goes ahead and leaves the European Union in March next year as a consequence of the referendum held in June 2016, the positives of such a move would be greater for the EU than for the UK.
As the major central banks are slowly retreating from their policy of asset purchases, we will probably witness some of the side effects of this withdrawal.
Warren Buffett famously said that “Only when the tide goes out do you discover who’s been swimming naked.” The tide is going out only slowly, but we are beginning to see, at least in the UK, the damage the ultra loose monetary policy has done.
What a spectacular lesson the first half of the year delivered for investors. At the beginning of the year, it looked like the UK’s vote to leave the European Union was a great idea: the eurozone seemed on the brink of disintegration.
The European Central Bank (ECB) will find itself the only game in town soon. It is the only major central bank still buying bonds hand over first, and therefore it is dictating the pace for private investors.