Uncertainty Builds Over Effectiveness of Central Banks

Global equities tumbled into a bear market overnight as financial markets signalled that investors have lost faith in central banks’ ability to support the worldwide economy. The MSCI All Country World Equity Index ended a torrid session 20.18 per cent from its May 21, 2015 record high close, confirming global stocks were in a bear market.

European stocks fell heavily, but losses on Wall Street were pared in late trade after an unconfirmed report emerged that OPEC members were willing to cut production. ASX futures are pointing to a 0.8 per cent drop at the local open on a quieter day for both local earnings and data. The highlight will be RBA governor Glenn Stevens’ testimony in Canberra.

Overnight Sweden’s central bank was the latest to signal its ability to steer steady policy was lessening. The Riksbank cut a key rate further into negative territory as it struggles to bolster inflation and check the krona’s appreciation. “Central bank policies and the uncertainty around their effectiveness is the big macro concern right now,” said Leo Grohowski, who helps manage more than $US184 billion in client assets as chief investment officer of BNY Mellon Wealth Management in New York. “There’s a large disconnect right now between what the Fed might do and what they’re saying and what the market is expecting. There’s a lot of Fed uncertainty back on the table.”