Buttonwood: Liquid leak

Posted: February 19, 2016 in economy
Tags: , ,

UK Only Article: 
standard article

Issue: 

Out of ammo?

Fly Title: 

Buttonwood

Rubric: 

Can weak markets be explained by changes in bank balance-sheets?

ECONOMISTS have been a bit puzzled by the market turmoil of early 2016. It seems to be driven, in part at least, by fears of either an American recession, or a sharp Chinese slowdown, neither of which looks likely from the data. Perhaps the answer to the conundrum is that market movements are not being driven solely by fundamentals but by recent developments in market liquidity.
Central banks’ support for markets, via quantitative-easing (QE) programmes, is well known. Emerging-market central banks have also been big buyers of government bonds as they have built up their foreign-exchange reserves. But the Federal Reserve stopped its QE programme in 2014 and, in recent months, Chinese foreign-exchange reserves have fallen by around $700 billion. This means the Chinese authorities are net sellers, rather than buyers, of financial assets. Low oil prices mean that sovereign-wealth funds in oil-producing countries may …

via Economic Crisis http://ift.tt/20GyELT

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