If the opening salvos of 2013 tell investors anything, it is to keep their eyes fixed on the world’s central banks rather than its more volatile politicians or even spluttering economies.
Given the US Federal Reserve’s musings on Thursday about how long it can sustain its current monetary policy, that is not as unambiguously positive as it proved over the past 18 months.
The jump in 10-year treasury borrowing rates to eight-month highs on Friday gives a glimpse into what may happen if dissenting views within the Fed spread when jobless rates ease closer to its now stated target to 6.5 percent.
An unchanged US unemployment rate of 7.8 percent last month may suggest that is a story for another time, but the episode underlines that central bank policy more than any other factor will still dominate global markets’ direction for the foreseeable future.
If you had ignored pretty much everything else last year and bet solely on the determination of the “Big Four” central banks – the Fed, European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England – to doggedly pursue market stability and economic reflation, then you would have done handsomely.
“The Fed, the ECB and the BoJ are more aggressive with their [quantitative easing] operations than at any time in history,” said Stephen Jen, the head of hedge fund SLJ Macro. “The path of least resistance for risk assets remains up for now.” – Reuters