If free and open markets are the Wild West, inhabited by roving bands of asset managers, hedge funds, investment bankers and random traders, then the sheriffs are the central bankers. A change of sheriff makes a real difference to trading conditions. The focus of London traders and analysts has already shifted to a new sheriff with the arrival of Mark Carney at the Bank of England next week, and much anticipation of his new tool of ‘forward guidance’, which he is expected to unveil in August.
Central bankers, far more than politicians, have long held sway over financial markets. That influence is at its greatest at times of economic tumult. We have been sharply reminded of this during the period after the great panic of 2008 and the subsequent great recession. Never have the actions of central bankers been so closely watched or so important to market trends. The co-ordinated interest-rate cuts of early 2009, quantitative easing in the United States and the UK, the recent doubling of QE in Japan and the unveiling of ‘outright monetary transactions’ by the European Central Bank last year, have all driven market trends.
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