Our Market Optics chartbook contains data-driven insights that power our portfolio management teams’ views, ideas, and decisions. Each week, we’ll take a look a closer look at one of the charts.

This week’s topic: Global economy: Monetary policy.

  • In response to the manufacturing recession of 2019 induced by the U.S.-China trade war and Brexit uncertainty, central banks pivoted from tightening to loosening policy.
  • In the wake of the coronavirus crisis, central banks had to do even more to provide economic relief. For central banks that had already pushed rates to their lowest comfort level, this meant more asset purchases. A lot of these asset-purchase programs were designed to keep credit flowing and served as a type of “bridge loan” until the coronavirus lockdowns were lifted.
  • Now, central banks seem prepared to be very patient with removing accommodation. If anything, their bias seems to be quick to provide more support rather than to be quick to get too optimistic.
  • Extraordinary monetary support does not need to be inflationary. In this case, it was offsetting a possible collapse in credit. Central banks can sop up excess liquidity, if necessary, by paying interest on reserves and slowly letting the acquired assets mature.

Get more charts and insights like this by downloading our Q2 Market Optics chartbook today.

Disclosure:

All investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics.

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