Markets are unscathed by geopolitical volatility, more so than usual, as independence protests rock Hong Kong, Lebanon, Spain, and Britain. This illustrates the enormous discontinuity the market has against geopolitics and is a reminder that monetary policy and interest rates play a far more influential role.
Central banks’ primary mission is to keep consumer prices stable. In the decade of lowering interest rates, their policies appear to play a bigger role in markets than on consumer prices. Unable to create inflation, exiting head of the European Central Bank, Mario Draghi, was unable to reach his inflation target. “‘There is no other way to put it: under [Mr] Draghi, the ECB has failed to fulfill its mandate,’ said Christian Odendahl, chief economist at the Centre for European Reform.”^1
More than $17 trillion of global bond rates are now negative, forcing savers to take additional risks by investing in stocks, driving equities higher. The increasing money supply and liquidity have made markets numb to fundamental data, whether driven by weaker earnings this quarter or geopolitical drama.
So where are we at?
US stocks are maintaining a flattening posture, technically, amidst weaker earnings this quarter.
European equity markets are begging to break higher, an overdue reaction to aggressive ECB stimulus.
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^1: FT 10/22/19: "Draghi legacy Euro saved but inflation target missed”