Can central banks support the markets?

By: Miguel A. Rodriguez

09:45, 14 September 2020

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Artificially inflated, central-bank-fed markets seem to keep the real markets moving.

The latest Flow Show report by Bank of America showed unexpected information about the current economic situation caused by the pandemic.

According to the report, over $4 trillion worth of assets is now in possession of various central banks around the world.  Data showed that for the past two months, banks purchased almost $2.4 billion assets every hour. Strategists foresee a decline in value in the next weeks, with the $2.4 billion slowly becoming $608 million. Although this is a move meant to keep the overall economies afloat, analysts believe that this could make the markets even more volatile than now. 

The market's value increased by $15 trillion since this strategy came in force. Another record has been set this past couple of months: $17.8 billion was invested into bonds just last week, and $3.5 billion was invested in gold – the second largest installment ever recorded.

According to Michael Hartnett, Chief Investment Strategist, the strategy of Bank of America is bearish at its core, in line with the overall market, but this can have unexpected effects in 2020, forcing investors to buy, banks to lend money, and debt. Moreover, he believes that the idea of negative rates on which president Trump marched and was rejected by Powell will come into focus again.

Analyst consensus shows that the global PMI (Purchasing Managers Index) may cross the demarcation line between growth and contraction in November, in the best-case scenario. It means that the V-shape recovery that everyone hopes will happen will have a chance of approximately 10%. USA500’s upward rally has small chances to hold, even though since March in gained 30%. Historically speaking, USA30 and USA500 usually rebound 61% on average during crisis, but after that, a drop of 49% follows.  

Sources: thestreet.com, cnbc.com


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This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.