ACTV - A Momentous Week For Monetary Policy Bodes Well For Markets

2024-03-27 01:05:00 ET

Summary

• The BOJ’s decision to end negative interest rates is turning out to be a “best possible scenario,” in my view, representing a vote of confidence in the Japanese economy but with extremely gentle normalization in the offing.
• SNB became the first developed central bank to cut rates in this rate cycle, which I think makes it easier for the Bank of England, US Federal Reserve, and European Central Bank to begin rate cuts.
• Gentle rate cuts could create a mildly supportive environment for risk assets, which could also be helped by a high level of cash on the sidelines.

For some time now, I’ve contended that monetary policy has had an outsized impact on markets. This started when major central banks implemented extraordinarily accommodative and experimental monetary policy to combat the Global Financial Crisis.

But it’s continued in the last several years when we saw a massive amount of tightening to combat pandemic-era inflation, which had a dramatic impact on markets in 2022.

Given the importance of monetary policy in driving markets, last week was a momentous one with five developed market central banks and seven emerging market central banks meeting – leading to two historical decisions being made....

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