Having survived the largest collapse since 2008, the American and world indices have been steadily growing for several weeks, and commodity assets are also adding in price. Analysts and other experts cite a change in the Fed's rhetoric, progress in the US-China negotiations, and so on. But what is the real reason for such rapid growth and why do the words of the Central Bank diverge from the deeds?
If we go back a month and remember what chaos reigned in the markets, a fair question arises - what has changed so dramatically that the collapse was replaced by a rally? In theory, if market participants were forced to sell assets due to lack of liquidity and changes in the value of money, then they should feel uncomfortable even now. Nevertheless, we see any dips being bought out, and the American index is growing at the fastest pace since 2009.
In fact, this growth has a fairly simple explanation, which, however, does not lie on the surface. The point is not at all about the economy, not about the expectations of the end of the trade war and changes in the Fed's policy - the whole thing is about the Central Bank itself.
Just look at the chart, which shows the size of the balance sheet of the world central banks and the dynamics of global stock markets.
At the end of last year, investors finally realized that central banks have moved to normalize their policies and have begun to withdraw liquidity. The nightmarish December collapse was a return to reality. However, it seems that panic in the markets has become the last straw for the global elites, and the so-called “rescue team” has returned to the market, which is preventing the fall in asset prices. The main thing to pay attention to is that the size of the balance sheet account of the Central Bank began to grow again.
This is what makes the markets grow aggressively, speculators massively close short positions and forget about the fall, and show economically irrational P / E figures.
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Absolutely nothing changes. Just like in 2016, 2017 and 2018, at the beginning of the year, the balance sheet accounts of the largest central banks begin to grow, and along with them the value of stock assets grows.
Investors would not have any questions if the Fed did not pursue a policy of reducing the balance sheet, and the ECB did not announce the completion of the quantitative easing program in December. The Bank of Japan, we recall, is reducing the volume of purchases.
It seems that the words of individual regulators are at odds with the deeds. It has only been a month since Mario Draghi solemnly announced the end of the asset purchase program, but the ECB's balance sheet for some reason continues to grow, and along the same trajectory as before.
Obviously, market participants should once again learn one simple lesson: they need to watch what the Central Bank is doing, and not listen to what they say.