Breaking News
0

Financial Markets Roiled By Central Banks

By Peter C. KennyMarket OverviewFeb 10, 2016 08:28AM ET
www.investing.com/analysis/financial-markets-roiled-by-central-banks-384078
Financial Markets Roiled By Central Banks
By Peter C. Kenny   |  Feb 10, 2016 08:28AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

To say that central banks around the world have managed to box themselves and the world's economies into a corner would be an understatement in the extreme. From the ECB's adoption of negative real interest rates in 2014 to Japan's BOJ shift to the same this year. From China's unsustainable draw down on foreign currency reserves in part due as a result of the PBOC's move to devalue the yuan to the Federal Reserve's move to raise rates in the face of global deflation. The lack of monetary coordination by the world's central banks, in a world economy increasingly framed by uncertainty, has left both debt and equity markets in a state of extreme dysfunction and volatility. However, it would be simplistic to place all the blame for our current state of affairs on central bankers. There are limits to what monetary policy can achieve. Fiscal policy, bloated debt loads (personal and as per GDP), anemic demand and many other factors all play a role.


Look no further than the banking sector in select markets around the world. For example, since the BOJ move to negative rates two weeks ago, the financial sector of Japan's economy has dropped by 20%, as measured by equity prices. Here in the United States, the financial sector as measured by the S&P financial sector ETF, (N:XLF), has dropped 15.85% this year. Financials have borne an uneven weight of selling pressure but they are hardly alone. The broader market as measured by the major US equity indices paints a painful picture for investors as well. The S&P 500 is off 13% from its 52-week high and lower by 10.23% thus far in 2016. The NASDAQ Composite is 18% below its 52-week high and 14.65% thus far in 2016. The best performing of the three is the Dow. The Dow Jones Industrials are 13% below their 52-week high and 7.86% lower on the year. My point simply put is that markets have rotated towards a level of volatility and uncertainty that we have not seen since the financial crisis. Conventional analytics during a period of such remarkable global dysfunction rarely makes much sense.


If you take into consideration that crude oil has fallen over 70% from its all-time high, that OPEC has dissolved as a pricing/production cartel into an irrelevant organization, that the United States is exporting crude for the first time in over forty years and that Cushing Oklahoma has literally run out of storage capacity, matters become increasingly challenging. Uncertainty is being priced into markets from equities to commodities, from debt instruments to currencies. This chapter of upheaval will not come to a tidy and neat conclusion any time soon. As if to undermine how challenging equity market conditions have become, Bloomberg News posted an article last night entitled; "Goldman Sachs Abandons Five of Six Top Trade Calls for 2016." That is a first in my 35 year career.


The cautious outlook with which I framed my 2016 outlook remains unchanged. I continue to find meaningful value in volatility protection and gold as a counter measure to weakness in equity pricing. That said, it hardly takes a genius to point out that we are likely very close to a bottom in crude. We will not bounce off the bottom we reach. Crude prices will remain constrained for an extended period of time - likely until the fourth quarter. By that time, the damage done will be irreversible for the economies reliant on the energy sector.

Financial Markets Roiled By Central Banks
 

Related Articles

Financial Markets Roiled By Central Banks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email