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Central Banks’ Efforts to Reaccelerate Growth Also Lifting Global Stock Markets

In the midst of a bruising trade battle between the U.S. and China, and slowing global growth, the world’s central banks this year have come to the rescue, slashing interest rates in the hopes of allaying downturns in their domestic economies.

This support has helped shift market sentiment with an increasing number of stock markets around the world heading toward strong rallies. Inflation remains low, and while hopes for a wide-ranging U.S. and China trade deal may be fading, the two nations continue to seek a bargain of some sort. The result appears to be a favorable backdrop for stocks even as current positioning leans more toward a defensive stance.

Unigestion SA, an asset manager, says risk appetite remains elevated as economic growth is showing early signs of reaccelerating, inflation is low and ample monetary policy accommodation seems guaranteed by the majority of central bank policymakers. The “pain trade” remains to the upside, it says.

“An environment such as the current one, with stable growth, supportive monetary policy and declining uncertainty is fertile ground for risky assets,” Unigestion said in an October 28 Strategy Update.1

In the U.S. as expected, the Federal Reserve cut interest rates on October 30 for the third time since July, leaving its benchmark overnight lending rate at a range of 1.50% to 1.75%. The rate-setting Federal Open Market Committee (FOMC), though, pivoted from the “act as appropriate” language to sustain the economic expansion it used in previous rate announcements.

Instead, it shifted to language indicating that it would wait for now and assess incoming data about the economy prior to further rate cuts. “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate,” the FOMC’s statement said.2

During the past year, a growing majority of central banks across the globe have cut interest rates. Apart from the U.S., the European Central Bank (ECB) also took action in the third quarter, while restarting quantitative easing, completing what Fitch Ratings has called the “U-turn” in global monetary policy direction. The Bank of Japan also said October 31 that it would keep policy rates at current levels or lower them so long as uncertainties remain about inflation reaching its 2.0% target.

“Global central banks have delivered the most rapid and geographically broad-based shift to monetary policy easing since 2009,” Fitch chief economist Brian Coulton, said in a release in late September.3

For their part, investors have been taking central bankers’ support as a cue that riskier assets like stocks are a good bet, at least for the time being. According to Thomas Callum of Topdown Charts, a bull market is underway in global stock markets. At 15, the number of countries (a mix of developed and emerging markets) trading at 52-week highs was the most in 22 months, according to an October 28 post.4

The proportion of countries whose main equity benchmark is up by at least 20% relative to a 52-week low (a rule of thumb for a bull market) recently reached 27% out of 70 countries tracked. This is up from roughly 4% at the lows of late 2018. Callum says that, with both indicators, it’s important to watch for follow-through – more countries making 52-week highs, and more countries gaining at least 20% from their 52-week lows.

Unigestion adds that investors, thus far, are defensively positioned leaving room for further upside. “Investors still seem to be positioned cautiously, with hedging assets and downside protection bid up, suggesting that if there were a market rally, it would be supported by investors shifting back into growth-oriented assets.”

For another look at the key factors that may be at play as to whether the market closes out the year on a strong note, please see Are We Headed For A Year-End Rally?, written by Benjamin Bimson, Trek’s chief investment officer.


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1 Unigestion SA. (2019, October 28). Multi Asset Risk Targeted Strategy Update. Retrieved from:

2 Federal Open Market Committee. (2019, October 30). Federal Reserve issues FOMC statement [Press Release]. Retrieved from:

3 Fitch Ratings. (2019, September 30). Fitch Ratings: World GDP Growth to Hit an Eight-Year Low in 2020 [Press Release]. Retrieved from:

4 Callum, T. (2019, October 28). Global Equities: The New Bull Market. Topdown Charts Limited. Retrieved from:

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