Doves On Parade

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Includes: BIL, BNDX, BWX, CLTL, CNY, CYB, DEUR, DFVL, DFVS, DIAL, DJPY, DLBL-OLD, DLBS, DRR, DTUL, DTUS, DTYL, DTYS, EDV, EGF, ERO, EUFX, EUO, FIBR, FIXD, FXCH, FXE, FXY, GBIL, GIM, GLBY, GOVT, GSY, HYDD, IEF, IEI, IGOV, ITE, JYN, OPER, PLW, PST, RISE, SCHO, SCHR, SHV, SHY, SPTL, SPTS, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, UDN, UEUR, UJPY, ULE, URR, USDU, UST, USTB, UUP, VGIT, VGLT, VGSH, VUSTX, YCL, YCS, ZROZ
by: Claus Vistesen
Summary

For a while, it seemed as if the world’s biggest central banks were sleepwalking into coordinated tightening, or in the case of the PBoC, failing altogether in the attempt to counter a sustained cyclical slowdown.

In Japan, signs of wage growth briefly alerted markets to the prospect that the JGB market would be un-frozen by further loosening of the yield curve control.

In Frankfurt, the ECB recently downgraded its assessment of the economy.

I still don’t like the trajectory of excess liquidity indicators, but if the major monetary policy makers are now pulling in the same dovish direction, it could be a powerful tonic for risk assets, at least for a while.

My main job on these pages is to distill the market Narrative™ for my readers, and recent events have made this week’s missive a layup. The debate on whether to fire, and how to arm, the fiscal bazooka has continued, and now monetary policymakers have joined the party. For a while, it seemed as if the world’s biggest central banks were sleepwalking into coordinated tightening, or in the case of the PBoC, failing altogether in the attempt to counter a sustained cyclical slowdown. To the extent that the Q4 chaos in equities was investors’ vote on this strategy, they should consider their message received.

In Japan, signs of wage growth briefly alerted markets to the prospect that the JGB market would be un-frozen by further loosening of the yield curve control. But the truth is that Kuroda-san is stuck. With global headline inflation pressures now easing, manufacturing and exports struggling, and the looming consumption tax, the BOJ isn’t going anywhere fast; zero rates and (modest) balance sheet expansion will continue as far as the eye can see.

In Frankfurt, the ECB recently downgraded its assessment of the economy - the convoluted shift from “broadly balanced” to “downside” risks - and expectations are building that the TLTROs will be extended, or even renewed and expanded.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.