As analysts have observed, Global Stocks have been registering performances that can be best termed as “lackluster” in the recent past and some believe that the dismal performance could in fact be proof of an “air pocket” in the market, heralding the onset of another global recession. However, there could be a different explanation for the same as well! It could also be attributed to the recent activism by the Central Bank that has forced the markets to deviate substantially from the economic fundamentals.
Over the last few months, central bankers have again widened the gap that separates the weaker fundamentals from the sky rocketing market rates.
Although it isn’t clear if the central banks consider it a favored move themselves, there are some central banks that are being relentlessly dragged into a monetary policy that seems to be far more accommodating. However, the phenomenon is not being considered as a very favorable one by many. Examples in this regard would be the fresh round of interest rate deflations in Korea and Brazil that took place this week. However, these interest cuts were not a result of good policy, rather, they sought to counter the forms of collateral damage that stemmed from unconventional forms of policies that were being pursued by the Western Central Banks.
The very fact that the Central Banks are “completely in” could perhaps herald some good news for all markets, especially for the short term. And the positives could be more apparent when compared with the “air pocket” phenomenon. However, investors are being advised to refrain from getting too carried away! There is always a limit to how long and how far the prices can actually deviate from the fundamentals. And this would more likely be the case when the central banks act without the support of government entities and do not possess adequate tools to secure sustainable and positive economic outcomes for global stocks.
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Chief Market Analyst, ITM Trading