Feb 4 (Reuters) – The pain is increasing in global markets,
but the likelihood of immediate relief from the Federal Reserve
and the European Central Bank isn’t.
A novel idea, that the Federal Reserve won’t send the
cavalry every time risk assets fall by a few percent, will in
itself be profoundly unsettling to investors used to conflating
their own wellbeing with that of the global economy. But with
transition to new leadership and no sell-off in critical
government bonds, it will take more than a few percent off
equities to prompt a U-turn on the Fed’s decision to trim bond
The ECB is if anything less well positioned to provide balm,
though given its track record and the euro zone’s institutional
issues this will come as less of a surprise.
Developed market equities fell sharply on Monday, with U.S.
stocks adding to losses logged in January, taking the Standard &
Poor’s 500 index more than 6 percent below its recent
all-time highs. Emerging markets, which have been hit
with a sort of mini-crisis as the Fed tapers bond purchases,
also fell amid notable volatility.
While this all was likely touched off by the Fed’s decision
in December to begin to cut the amount of bonds it buys monthly,
there are some very good fundamental reasons for investors to be