November 14, 2017, 4:00pm EST
As we’ve discussed, in the post-election world (of last year) we’ve had a passing of the baton from a global economy driven by monetary policy, to a global economy driven by structural reform and fiscal stimulus.
With the anticipation of fiscal stimulus, the election represented the end of the QE-era. With that, the top central bankers in the world (Fed, ECB, BOJ, BOE) met today and had a coordinated message to that effect. Just as they coordinated their QE programs to stabilize the world and manufacture recovery, they vowed to coordinate on the exit of QE.
Still, Europe has more work to do before following the Fed’s lead on “normalizing” rates. And Japan will be far behind Europe in ending QE. But that message of coordination should keep global (market) interest rates moving higher.
We’ve talked in recent days about the pockets of selling in global markets. Last week it was junk bonds, then Japanese stocks, then Treasurys and then gold. Today it was commodities, led by oil. Oil was down 2.4% on the day. And the dollar was lower (not higher, as some might expect with commodities moving lower).
Meanwhile, the big U.S. market indices couldn’t be shaken and the Treasury market was very quiet. These intermarket relationships haven’t been normal. And that should raise some eyebrows about elevating risk.
We’ve talked in recent days about the influence that we may be seeing in markets from Saudi Arabia’s move to investigate (potentially seize) up to $800 billion of wealth from high profile officials accused of fleecing the country.
The proxy for global market stability, throughout the past decade (the crisis and post-crisis era), has been U.S. stocks. So as long as U.S. stocks are holding up, people continue to ignore some of these “risk” signs. But give it a 2% down day and suddenly the observables may become observed.