Despite my bullishness this year, it seems the economy has other ideas.
Yesterday the Fed said it expects the US economy to grow more slowly than expected. Today the Bank of England in the UK is expected to say something similar.
Note that both are saying ’slow growth’ rather than ‘no growth’ let alone ‘negative growth’. But it would be churlish not to stress than the economies of Europe and the US haven’t caught fire as fast as some (me) had hoped and thought they would, even if global growth still looks likely to be closer to 4% than 3% for the next couple of years.
In response to what I believe is at worst a speed bump, the US Federal Reserve announced it would recycle some of its $2.3 trillion asset pool into purchasing US Treasuries to keep yields low and to avoid draining liquidity out of the system.
What is astonishing anew is just how big the Fed is in this market now:
Click to see how big the Fed is in the market
Half the time I’m inclined to think this idea that the bond market is signalling a slowdown while equities are expecting (some) growth is absolute nonsense, given the distortion in the market. The Bank of England said that QE here had depressed yields by 1%, but you wonder about multiplier effects.
(Source: FT Alphaville)
