The tide is about to turn for markets as the easy-money decade ends.
Swept along by super-easy money, investors have debated for years how world markets will react when this central bank largesse inevitably ends. Now the liquidity tide is about to turn, and they have only a few months to adjust.
The world’s four biggest central banks – the U.S. Federal Reserve, European Central Bank, Bank of Japan and the Bank of England – have pumped around US$13-trillion into the global economy since the crisis year of 2009, sharply expanding their own balance sheets of financial assets:
While markets reached dizzying heights during the easy money era, that flood will dry up by the year-end. For the first time since 2011, the central banks are expected to suck out more cash in 2019 than they pump in.
The ECB will stop additional bond buying at the end of this year, and while the Fed has been shrinking its balance sheet for almost a year, it will step up the pace from October, removing US$50-billion a month from markets. Bonds worth US$470-billion will roll off its balance sheet next year
After a near decade of money-printing and zero interest rates, the shift for markets will be momentous.
Steve Donze, senior macro strategist at Pictet Asset Management, estimates a net $100 billion will be removed from global liquidity next year.
Central banks will go from generating half a trillion dollars this year on an annualized basis, “to zero by the end of 2018, then negative next year...a definite tipping point,” he said. “That makes 2019 a dangerous year for financial assets.”
Read the full version of this Reuters story by clicking here.
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What’s up in the days ahead
We learned this week that Canadian investors can now buy and sell stocks and ETFs commission-free at Wealthsimple. This comes at a time when products in the wealth management industry are being launched with rock-bottom fees. But there’s a downside to the race in cutting investor costs. Dan Bortolotti will explain.
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Compiled by Gillian Livingston