Can central banks reverse the tide?
Today marked the final chapter of the Great Central Banking U-Turn of 2018/19.
The ECB finally climbed down from its talk of hiking this year, lowered forecasts and announced new stimulus measures. A day ago, the Bank of Canada also gave up (or mostly gave up) it's explicit hiking bias.
I'd argue that every major global central bank has climbed down to some extent or another. The Chinese have combined that with fresh lending and stimulus in what's been the most-powerful boost to the global economy.
The next big question is: Will it work?
Jitters about that are behind the latest leg down in risk assets. We're all left waiting to find out if the u-turn was enough to inspire investment in the real economy. I'm worried that it won't be. Australia, Canada and anywhere with elevated house prices is particularly vulnerable. Places with elevated fiscal deficits already are also worrisome.
The biggest risk of all remains China. The flood of cheap money is no guarantee of a pickup and a US-China trade deal is priced in.
For me, I just don't see many upside catalysts. Credit is cheap again but the US tax cut is fading and there's a good chance Trump hits Europe with tariffs.
Technically, charts like EUR/USD and AUD/USD worry me. The Aussie looks like it wants to retest the flash crash low.
The euro looks like it could go back to the 2016 low.
Safe to say I'm getting bearish on a few things.
