Central Banks In The Driver Seat

The Reserve Bank of Australia always has interesting comments ;

„Low interest rates are acting to support borrowing and spending, and credit is recording moderate growth overall, with stronger lending to businesses of late. Growth in lending to the housing market has been steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.“

– Regulators and National Bank see the housing market as potentially overheating (why mention it otherwise? The SNB here in Switzerland has exactely the same problem; housing overheating). The low long-term interest rates putting in a good bid to the market as a whole.

What could be the key for next months and years? I believe the big question is how this develops/unfolds:

„The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are stepping up the pace of unconventional policy measures. Hence, financial conditions remain very accommodative globally, with long-term borrowing rates for sovereigns and creditworthy private borrowers remarkably low.“

Fed slowing the US housing market. ECB heating up the EU housing market. The BoE heating up the UK housing market. The SNB heating up the Swiss housing market. Makes you wonder if the proverbial frog in the pot will realise it’s in water getting close to the boiling point, or whether there may even by a lid stopping it jumping out in time.

My feeling; at the moment there’s still much too much caution, too much money on the sidelines so that equity markets will see a good deal of M&A before the top there is seen. But there’s also a lot of fast money in the housing markets worldwide. But normally a bubble bursts AFTER an acceleration of a strong trend. To get back to my proverbial point with the frog; there’s cold water being poured into the pot regularly, still.

Looking at the SMI index, I would argue at the moment, that it should be less likely to break the 200 day moving average, than to stop and rebound. My opinion is based on the growing liquidity in Europe (a very important market for Switzerland), the high dividend yields of blue chip companies, the high liquidity held by investors, the lacking alteratives.



PS: The quotes are from Glenn Stevens, Governer of the Reserve Bank of Australia. They were published today.

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