Why Markets Are Crashing: "Faith In Central Banks Fails"

ZeroHedge

While Citigroup’s Eric Lee thinks its “ridiculous” to talk fo a US recession, it appears the macro data and markets would strongly disagree: as Bloomberg reports:

Signals by central banks from Europe to Japan that additional stimulus is at the ready are failing to ease investor concern that global growth will keep slowing.

 

 

Citigroup’s Economic Surprise Index already indicates data in Group of 10 economies are falling short of estimates by the most since April 2013, and a selloff in crude oil and weakening credit markets are exacerbating the malaise. Yellen suggested that the central bank might delay, but not abandon, planned interest-rate increases in response to recent turmoil in financial markets.

“Over the last few years when we got bad news, equity markets would rally because they would interpret this as potential for central banks to go more dovish,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment bank unit in London.

 

 

“Now that correlation is shifting to bad news is actually bad news. Investors are concerned over central banks’ policy options given the market is driven by factors over which they have little or no control over.”

And so the headline of the day from Bloomberg seems very appropriate:

Some further clarifications from Bloomberg:

Financial markets are signaling that investors have lost faith in central banks’ ability to support the global economy.

And some more:

 

“The markets are wondering, well, we’ve had these non-conventional monetary policy experiments for the last six or seven years and they haven’t caused a sustainable boost to global growth, so what will the latest moves do,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd. “It’s a reasonable question to ask given the events of the last few weeks.”

“The notion that central banks and regulators could not act if the financial panic were to turn into a serious threat to the real economy and hence to jobs looks wrong,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Central banks can bolster confidence if they really have to in order to support the real economy.”

 

“The period of central bank ‘shock and awe’ operations is likely to be behind us,” Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former International Monetary Fund economist, wrote in a note on Friday. “This will be the year that ‘gravity’ will overwhelm the central bank policies,” he said, recommending selling equities during rallies.

Perhaps hope, as promulgated by this recent Bloomberg addition, was not such a good strategy after all…