July 24, 2017 – Weekly Market Commentary



Karen Gilchrist – CNBC
ECB Sends a Dovish Message But Markets Don’t Buy ItSummary: The European Central Bank held interest rates and asset purchases steady on Thursday, amid speculation that it will start to scale back its ultra-loose monetary policy. ECB President Mario Draghi’s continued to have trouble calming the market. An initial dovish message by the ECB was quickly drowned out by talk of inflation and an end to asset purchases leading to a surge in the euro versus the US dollar. 

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Toru Fujioka – Bloomberg
BOJ Keeps Rates Unchanged, Postpones 2% Inflation DeadlineSummary: The Bank of Japan kept its monetary stimulus program unchanged and pushed back the projected timing for reaching its 2% inflation target. This is the sixth time the target date has been pushed back. The delay is a sign that the BOJ acknowledges the need to continue easing for several more years. 

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Bill Gross – Janus Henderson
CurveballSummary: Global central banks’ reliance on quantitative easing has distorted capital market. Although the yield curve is far from flat, Gross believes that at excessive levels of leverage a small rise in short term rates could lead to a contraction in GDP. It would take around a 0.85% increase in 3-month Treasuries to flatten the yield curve. During previous periods of flattening that would constitute a 10-20% rise in rates. Today that would be a near doubling of short term financing costs and could signal an economic reversal. 

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John Mauldin – Mauldin Economics 
Three Black SwansSummary: Mauldin focuses on 3 potential risks to the global economy. First, the Fed could overshoot raising rates. This could lead to deflation, which would be catastrophic to the highly levered economy. Second, the ECB tapering will be harder to unwind than the Fed’s and could cause a swift pullback in Europe. Lastly, China has been unable to rein in credit growth. If the Chinese economy begins to slow down it will likely lead to systemic economy risks. 

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Liz Ann Sonders, Brad Sorensen, and Jeffrey Kleintop – Charles Schwab
Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run ContinueSummary: The long running bull market continues to show remarkable resiliency and the Schwab team expects it to continue. The U.S. economy still remains a mixed bag of slow trend-like growth with waning inflation pressures. The threat of a sharp slowdown in China appears to have diminished but global tensions are still emanating from that region which has kept the markets from going through a “melt-up”. While the team expects equities to continue rising, we are currently in the fourth longest streak without a 5% pullback since 1950 and any correction would be healthy. 

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Richard Turnill – Blackrock Blog
The Start of the End of Ultra-easy Monetary PolicySummary: Gradually rising interest rates reinforce the case for owning stocks over bonds. Monetary tightening expectations shifted upward globally in June after markets interpreted ECB remarks as hawkish. Rising expectations should lead to inflationary pressures which are positive for equities. Additionally, Turnill expects normalization to disrupt the bond markets more than global economic progress and equity valuations.  





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