Monetary divergence.
Markets have been little affected by the plethora of monetary policy news: the sweeping re-election of Shinzo Abe in Japan and his re-commitment to ultra-loose policy, the ECB decision to extend its asset purchase programme, albeit at a reduced size, the first UK rate rise in ten years and the announcement that continuity candidate Jerome Powell will replace Janet Yellen as US Federal Reserve (Fed) Chair. However, Powell’s appointment reinforces market questioning of US tightening as inflation remains stubbornly low.
The dollar index has risen 4% since early September on Fed hawkishness; the divergence with Europe and Japan will push it modestly higher.
Despite a plethora of vulnerabilities in markets, the Vix Index, Wall Street’s so-called ‘fear gauge’, still stands at a 20-year low.
The Brent crude oil price passed 60 dollars per barrel recently for the first time in over two years, but further upside is very limited.
