Central Bankers in Driving Seat

Today’s market action is brought to you by – once again - central bankers. In what has apparently come as a shock to the market, overnight the European Central Bank (ECB) and The Bank of England (BOE) have come out and said they will keep rates on hold for a long time. Can you believe it?

This astounding piece of news was seemingly so unexpected that equity markets in Europe surged around 3%. Talk about Pavlov’s Dog…

Removing some of the sarcasm from our tone, let’s try and work out just what’s going on in the minds of our esteemed, wealth creating global central bankers.

The Federal Reserve, for years the paragon of easy money and market jawboning, has in recent months got the market thinking about an end to QE and ultra-loose money. As a result, a little speculative air has come out of the markets, which is a very good thing.

But this change in policy rhetoric by the Federal Reserve has reversed speculative capital flows. And at the same time, a drop in confidence about the impact of Japan’s grand monetary experiment saw speculative capital flow out of Europe’s peripheral bonds markets, which saw yields begin to rise again and threaten the region’s austerity drive. 

Read the rest of this article at The Daily Reckoning