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Does Stimulus Leverage EU, Asian Shares Over US Counterparts?

Does Stimulus Leverage EU, Asian Shares Over US Counterparts?

2016-02-19 00:47:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Monetary policy divergence between the hawkish central banks (Fed, BoE) and dovish (ECB, BoJ) drives FX trends
  • Accommodation theoretically targets growth, inflation and employment; but in practice it also effects markets
  • Yet, just as currencies aren't shaping up as expected; so too are the relative performance of shares misfiring

See the 1Q forecasts for the major equity indexes as well retail traders' positioning in the index CFDs on DailyFX!

Moral hazard and market terraforming has arguably proven the most reliable product of global monetary policy over the years. Yet, in another indication that aggressive easing is perhaps losing its potency, the markets backed by the most prolific stimulus efforts are not leading their austere counterparts. In the most recent upswing, we can see this unexpected performance imbalance between the DAX and Nikkei 225 on the dovish side and S&P 500 and FTSE 100 on the hawkish. In the 'traditional'interpretation of stimulus-backed investing, the German and Japanese indexes should outpace their US and UK counterparts. Yet, that hasn't been the case. Perhaps this is a side effect of an additional negative rate policy or simply evidence that the influence of such efforts is wearing off. We look at the influence of central bank support on relative market performance in today's Strategy Video.

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