Multi-Asset

Central Banks

In aggregate the major central banks have pumped around US$12 trillion into markets since 2007
April 2018

Risk Disclaimer

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

 

As always investment values may fall as well as rise and capital is at risk.

The US Federal Reserve has now raised rates six times since December 2015. Even so, the rate remains extremely low at 1.75%. The expectation is that the “Fed” will raise rates at least twice more in 2018. Quantitative Easing (QE) is gradually morphing to Quantitative Tightening. On top of rate increases the “Fed” is also shrinking its balance sheet as bonds mature. This calendar year several hundred billion dollars will be removed from the market. By 2020 a trillion dollars should have been extracted. Double-barrelled tightening.

The European Central Bank has slowed its rate of asset purchases; the Bank of England appears to have stopped (and raised rates) whilst the Bank of Japan finally seems to be slowing its rate of asset purchases whilst making various other encouraging noises.

 

In aggregate the major central banks have pumped around US$12 trillion into markets since 2007 – about the size of the Chinese economy. Reversing or merely stopping the process must have ramifications.

Risk Disclaimer

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

 

As always investment values may fall as well as rise and capital is at risk.

Central Bank Balance Sheet Expansion
(total liabilities to GDP%)

Source: Thomson Reuters Datastream

Regular readers will be aware that we have never been enthusiastic about QE. Even the central banks admit that they are not sure whether the unorthodox policies have worked as intended. In fact, the Bank of England states on its website … “It is difficult to tell if it has worked, and how well.” But now that it has happened, for better or worse, it has to be gradually unwound and that is what gives us slight heart palpitations.

All information as at April 2018, unless stated otherwise

 

For professional investors only

 

Pyrford International is an independent investment boutique operating as part of BMO Global Asset Management.

 

It seems to us that the major impact of QE has been to boost asset prices. With interest rates and inflation rising and central bank policies reversing it is logical that the main impact will continue to be on asset prices. Hence the palpitations.

 

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