Newsletter dated March 17, 2016

Share this post

Central banks drive markets. See our chart of the day for an obvious link between Fed bond buying activity and US stock market.

Last week ECB president Mario Draghi caused some confusion when announcing latest monetary stimulus. This is even more remarkable since he actually delivered the expected rate cut and extension of the ECB bond buying program.

First markets celebrated Draghi’s “Big Bazooka” since he played virtually all instruments available to him and some of them louder than anticipated. Equity markets jumped by 2 percent. However right after he said, that interest rates would probable stay at the current low levels for the next few years the party was over. This means no further interest rate cuts. Markets dropped by about 4 percent. The day after investor overcame their hangover and paired losses.

Yesterday the US Fed did not increase – as widely expected. Now the official wording has been reduced to ‘2 steps during 2016’. Currently the market sees a higher probability of an increase by just 0.25% which means 1 step.

Erwin Lasshofer and his INNOVATIS team think that central banks play significant role for global markets. See also our investment blog on this topic that we issue last week.

The US Fed is still tightening liquidity however at a lower pace. Other central banks around the world are expanding. If these contrary developments continue we will get more volatility at currency markets.