By Jan van Eck via Iris.xyz
Coming into 2019, investors faced two important questions: What are central banks doing, and what is happening with Chinese and global growth?
At the beginning of December, we were worried about the impact the European Central Bank’s (ECB’s) and the U.S. Federal Reserve’s (Fed’s) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December.
Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes, but I view it as a glass half empty for the following reasons.
Europe Reacts to ECB Tightening
As soon as the ECB initiated a little bit of quantitative tightening, in the second week of December, the financial markets started performing poorly. For demographic and other reasons, Europe’s sustainable growth rate may only be zero, which indicates that it is not a significant contributor to global growth. However, it is very important in the global trade and financial systems.
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