In the context of growing bearish risks on inflation, increased financial markets and commodities’ volatility, uncertainty over emerging countries’ economic growth and geopolitical risks, there are actually many reasons for investors to remain cautious. Prominent central banks’ officials like Mario Draghi and William C. Dudley insisted on the ongoing risks although the markets seemed to be recovering progressively from the 2016 first weeks’ rout. Far from having started a bearish momentum, stock markets rather stabilized, reassured by bad news that they’ve interpreted as good news.
For instance, the sharp fall in the Chicago PMI for February 2016 to 47.6 versus a 54.0 reading expected meant economy’s contraction. Yet for Mr. Market, this is good news considering that it could potentially delay the Fed’s rate hike agenda, by deciding of unchanging if not easing its monetary policy with a view to supporting the US economy. The issue is, however, that Quantitative Easing (QE) has yet to show strong results in the long term. With the end of the QE in the US came difficulties in the emerging markets which then should likely impact the US itself.
Despite a massive QE by the ECB, Europe remains engulfed with high unemployment, growing public deficits and a shaky real economy. The same is somehow true for Japan and China. Financial markets are hoping the central banks will re-start or boost QE, considering it has been at the source of an almost 7-year non-stop rally. But in the end, QE appears more and more like some good dope markets can’t detox from. Unchanging monetary policy means there’s currently no alternative solution so far towards a sustainable global economy.