Central Bank's response to stocks selloff is crucial

19.02.2018 / 15:00

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After last week's recovery in equity markets, everyone is asking themselves whether the storm is over. Perhaps the biggest risk in this respect is if central banks see the rebound as confirmation that the slump was no more than a healthy correction.

Such a stance risks overlooking the role that historically low interest rates played in the rally, and the part that the threat of global tightening played in the selloff. In addition, there's a danger that central banks could be overestimating the strength of the recovery and inflation.

Growth is picking up, but it's still weak in both developed economies and emerging economies compared to pre-GFC level. If the central banks misjudge this and overdo the policy tightening, what we saw at the start of the month might be just a warning of a real boiling point that is about to come.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

Varchev Traders

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Central Bank's response to stocks selloff is crucial

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