Chris Puplava: Over $5.5 trillion in value has been erased in global equities since they peaked in September and stabilized last Wednesday. The S&P 500 lost nearly 200 points with the Dow shedding nearly 1500 during the correction. Commodities took a nosedive as well West Texas Intermediate Crude, which fell nearly $28/barrel from a high of $107.73 in June to $79.78 last week. Selling climaxed when the Dow fell over 450 points last Wednesday; though panic selling quickly turned into panic buying as selling pressure was exhausted.
Part of what helped arrest the market decline was a culmination of widely telegraphed accommodative statements by central bankers across the globe. First we heard from Federal Reserve Bank of Chicago President Charles Evans who said the following on October 13th:
“History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap,” Mr. Evans said in a speech to a local group in Indianapolis.
“If we were to presume prematurely that the U.S. economy has returned to a more business-as-usual position and reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position” of having just raised rates off of near-zero levels, having to lower them in short order, the official said…
Speaking with reporters after his speech, Mr. Evans reiterated that he believes the Fed should likely hold off until the first quarter of 2016 before raising rates, as long at economy performs as expected…
The next day we heard from San Francisco Federal Reserve Bank President John Williams who said the following in an interview with Reuters:
“If we really get a sustained, disinflationary forecast … then I think moving back to additional asset purchases in a situation like that should be something we should seriously consider,” Williams said in an interview with Reuters.
Just two days later after the sharp swoon on Wednesday the 15th, St. Louis Federal Reserve Bank President James Bullard said the Fed should delay ending QE in an interview with Bloomberg:
“Inflation expectations are declining in the U.S. …that’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE…”
“We are watching and we’re ready and we are willing to do things to defend our inflation target,” Bullard said… A pause in tapering would protect against “downside risk” and bolster inflation expectations, he said. “We could react with more QE if we wanted to.”
Not to be left out of the market cheerleading party, our counterparts across the Atlantic chimed in on Friday to support their markets as well, starting with the Bank of England’s Chief Economist Andrew Haldane:
The Bank of England’s Chief Economist Andrew Haldane said Friday he is “gloomier” about the outlook for the U.K. economy than he was three months ago, and believes the benchmark interest rate can remain “lower, for longer” without pushing the rate of inflation above the Monetary Policy Committee’s 2% target.
Also out on Friday were comments from ECB Executive Board member Benoit Coeure:
Speaking to reporters at a conference hosted by the Bank of Latvia in Riga, Coeure repeated the ECB’s line that its Governing Council is “ready to take additional non-conventional measures, if needed…”
Turning to the ECB’s latest plans to buy private sector assets, he added: “We will start within the next days to purchase the assets that are foreseen under our new purchase programs, with the objective to steer the balance sheet of the ECB to a higher level.”
We also learned this week that the ECB may broaden its asset purchases to corporate bonds, which sent stocks across the globe higher on Tuesday the 21st. An excerpt from a Reuters article highlights the development:
The European Central Bank is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December with a view to begin purchases early next year, several sources familiar with the situation told Reuters.
European shares rallied on the news, led by banks and shares in peripheral countries. The euro fell more than half a cent against the dollar and credit indices tightened sharply.
Policymakers are desperate to revive the euro zone economy, which is barely growing and dogged by low inflation of 0.3 percent, far below the ECB’s target of just below 2 percent.
The comments from global central banks helped to arrest a brutal decline that drove sentiment to bearish levels not seen in years.