After a solid decade of easy money, loose money, or stimulus, global central banks are simultaneously winding down these programs. Although the ECB did nothing at its latest meeting this week, and some concern that the European economy was seeing “weaker momentum” Mr Draghi, the ECB Head, said that the schedule was still in place. Slower European growth is likely but Draghi stays firm. The ECB will end its 2.5 trillion EURO buying program called quantitive easing – the buying of mostly government bonds that has lasted a decade. Globally central banks are ending these historic quantitive easing which commenced to support global markets in response to the 2008 global market meltdown.
The US Fed is hiking rates as it ignores the wishes of President Donald Trump, who blames the Fed for the stock market collapse over the past several weeks. Keep in mind that recent US GDP growth has been reported at 4.0% and is expected to be in the 3.0 to 3.5 percent range. Combine this with the lowest unemployment rate in 50 years – down to 3.6 percent, and the concern for inflation becomes real. Should US rates be at 3.5%, maybe, but the robust growth and tight labor market means the Fed must ignore Trump and hike, again.
The big shift.
With liquidity being taken out of the market, the drivers for global markets will not be liquidity but fundamentals. So there will be more emphasis on fundamentals and core equity drivers – not just liquidity forcing indices higher.