A Brief Appraisal Of Central Banker Credibility

Takeaway: Fitch cuts its global growth outlook. BIS economists say central bankers are out of ammo. Should bulls really be all that bullish?

A Brief Appraisal Of Central Banker Credibility - central bank cartoon 02.17.2016

 

As faith in global central planners continues to wane, policymakers from the Fed to the BOJ watch as macro markets deteriorate in direct opposition to their optimistic forecasts. 

 

This Thursday (drumroll please...) we'll hear from ECB head Mario "Whatever It Takes" Draghi. Below is an update from our Macro team on what we expect to hear from him in a note sent to subscribers this morning:

 

"This Thursday the ECB meets and we expect it to announce additional simulative policy. According to our Big Bang Theory, after 600 rate cuts globally, there’s a new regime of investors that has given up on the belief that central bankers can artificially produce stimulus and weaken their currency for economic benefit.

 

This policy hasn’t worked in Japan, and it isn’t going to work in the Eurozone. We expect the EUR/USD to bounce on a simulative announcement:  to our TREND ($1.12) and TAIL ($1.13) resistance levels. We also expect associated selling of European equities."

 

A Brief Appraisal Of Central Banker Credibility - eurusd

 

More bad news for global central planners 

Over the weekend, Bank For International Settlements chief Claudio Borio said there are "signs of a gathering storm" as central banking policies lose their potency.

 

In a paper, the BIS noted that inflation expectations were deteriorating, high-yield credit and sovereign emerging market debt spreads have blown out, and there has been a marked selloff in global banks. Here's the conclusion:

 

"Underlying some of the turbulence of the past few months was a growing perception in financial markets that central banks might be running out of effective policy options... Markets had seemingly become uncertain of the backstop that had been supporting asset valuations for years. With other policies not taking up the baton following the financial crisis, the burden on central banks has been steadily growing, making their task increasingly challenging."

 

A Brief Appraisal Of Central Banker Credibility - Draghi cartoon 01.08.2015

 

Meanwhile, earlier today ratings agency Fitch cut its outlook for global growth to 2.5% in 2016. (Welcome aboard the #GrowthSlowing train.) This is down from its previous forecast in December of 2.9%. Apparently, the slowdown in China and collapsing commodity prices that shocked emerging markets had handicapped prior estimates.

 

No worries right? With bulls placing their faith in omnipotent, gravity-arresting, global central banks to stop the bleeding, what could possibly go wrong?

 

more to be revealed...

 


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