MARKET OBSERVER – N° 90

The forecasts of the most important international research institutes which indicated a generalized cooling of the global economy in 2016, promptly priced in by the stock markets which recorded one of the worst declines in history in January, are belatedly bringing major central banks to review their monetary policy. In practice it does not seem wrong to assume that the inevitable QE 4Si actually started after the G20 in Shanghai. Taking for simplicity of analysis of the three major economic regions one can see that the ECB remains by far the most accommodating having recently injected 1.2 trillion of liquidity, debt securities purchased by banks for about another trillion and allowed to the monetary base to expand by 40%, on an annual basis for last three months. Even more interesting is the operation of the US Federal Reserve, which has halved the inverses taking the from almost 600 billion in December to 300 in March, confirming that doubts on whether to tighten credit are growing within the Directorate. In Asia, the Bank of Japan has taken to inject liquidity after a waiting period while the Chinese central bank, the PBOC, is conspicuous by its absence from the credit market. Thanks to these positive developments, the global liquidity ratios have quickly improved, returning to normalized levels in March, after coming close in January to levels compatible with the start of a modest recession. Given that the effects of the increase in available liquidity begin to be reflected in economic systems with a delay of about nine months, one could interpret the recent sideways movement of the main indexes as a technical accumulation phase rather than distribution, as it was so far understood before the sudden change of policy, especially by the US central bank.

In fact, it explains precisely the positive dynamics of US indexes, which not only sacrificed half the ground lost by European bourses in January, but are now only a few percentage points from the historic highs recorded last year. In fact, fundamental economic data does not justify too great a correction, but it seems as if the market does never believed that the Fed would implement, among other things during the election year, the number increases in the cost of money envisaged in December. This interpretation is a credibility problem for the central bank, so you can not exclude an intervention on rates in June, but should be justified by a cyclical trend, albeit difficult to achieve, considering that in the first quarter US GDP is likely to grow well below 1% in real terms. Consequently, the dynamic perspective of the S&P 500, could pose a credible guide to assess whether the recent stock market decline has already recorded its minimum in February or if there are to be expected further corrections before summer. Technical analysis indicates support at 2050 and 2000 points, while at the moment the index looks set to test resistance at an altitude of 2150. So if the trend holds up, the most attractive opportunities are not found in Wall Street but rather selectively in Europe but in the most general way in Asia and in emerging markets. In fact, the Governor of the Fed, Mrs. Yellen recently came out in favor of a strategy of negative real interest rates, which is already reflected in the external parity of the dollar. Given that the US Central Bank has already given convincing signs that is has expanded its mandate to the global economy, clearly due to the effects on the inner one, it seems logical to give space to emerging economies through an increase in the price of raw materials, thanks to a more competitive greenback. In this respect, the Asian markets depending on Chinese developments appear the most interesting, not only in terms of the stock appreciation but also with regard to the dynamics of their currencies, destined to appreciate making domestic bonds attractive.

Nicola Bravetti Fonte dati: Bloomberg