Uncertain Global Growth and Policy Environment

by BCA Research
Financial Sense

2016 is turning out to be a year where global central bankers are finding out what they cannot do.

[…] China found out early in the year that currency depreciation can no longer be used as a source of stimulus without causing panic in their equity markets and large capital outflows. The ECB and the BoJ later discovered that policy rates cannot be pushed deeper into negative territory to boost growth without damaging domestic banks’ profitability and share prices. Even the Fed has come to the realization that interest rates could not be increased as much as planned without causing troublesome gains in the overvalued US dollar.

The move to less-active central banks has been very supportive for global fixed income markets over the past couple of months. Government bond yields remain at very low levels with monetary policy still highly accommodative and global inflation subdued.

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