Well, that didn’t take long to come to fruition.
In this past weekend’s commentary, I discussed the likelihood of Central Banker’s leaping into action to stabilize the financial markets following the British referendum to leave the E.U. To wit:
“Of course, the reality is that we will likely see a globally coordinated Central Bank response to the financial markets over the next few days if the selling pressure picks up steam. This will come in the form of:
- Further interest rate reductions
- Deeper moves into negative rate territories
- Increased/accelerate bond purchases by the ECB
- A potential short-term QE program by the Federal Reserve
- A pick up of direct equity/bond buying by the BOJ.
- Liquidity supports through FX swaps or direct intervention
- Lot’s and Lot’s of “Verbal Easingâ€
Not to be disappointed, Mario Draghi sprung into action on Tuesday suggesting a greater alignment of policies globally to mitigate the spillover risks from ultra-loose monetary measures.
“We can benefit from the alignment of policies. What I mean by alignment is a shared diagnosis of the root causes of the challenges that affect us all; and a shared commitment to found our domestic policies on that diagnosis.†– Mario Draghi at the ECB Forum in Sintra, Portugal.
Furthermore, as noted by John Plassard, a senior equity-sales trader in Geneva at Mirabaud Securities via Bloomberg:
“Stocks are rebounding on the expectation that there will be a coordinated intervention by central banks. What central banks can do is put confidence back in the market by telling everyone that they are here and ready to act. If we don’t get that sort of support, we’ll see further declines.â€
What Do They Know?
While I am not surprised by global Central Banker’s rush to action, it is important to keep things in perspective. Take a look at the chart below.
