Markets Remain Supported by the Central Banks

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Markets Remain Supported by the Central Banks

Markets Remain Supported by the Central Banks



Markets go up, markets go down, markets go up, markets go down.

The markets continue to consolidate around their highs and remain supported by the prospect that, whatever happens from a macro perspective, the central banks are ready to pump more money into the system.

But therein lies the problem. A sort of 'false market' is being created as economies limp on with the assistance of new cash creation rather than going through the necessary reforms to become more efficient.

As long as central banks continue with their unconventional monetary easing, risk assets such as equities could remain well supported.

We've even seen evidence of this during 2013, as global markets have had a good run higher without suffering from any major move to the downside as yet.

Were it not for the assistance of the central banks, the pull backs that we have seen, such as over the US fiscal cliff and Italian election stalemate, could have been far greater.

Another example was last night's US session, where concerns over the $85 billion government spending cuts have been discarded by fresh optimism that the Federal Reserve will maintain its loose monetary policy to spur growth.

Following a slightly negative start for the Dow, investors reverted to a more positive mood, pushing the index 40 points higher to 14,130.

This bounce came despite poor Chinese services data, suggesting that US investors remain insular in their outlook, with the Dow continuing to look very comfortable at its multi-year highs above 14,000.

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By Angus Campbell, 5 March 2013


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