Global Monetary Policy

The chart below is unique because it shows 9 central banks, giving a more complete picture of the liquidity being added to the financial system. As you can see in the description, this includes the expectation that the ECB will taper to 30 billion euros per month for 9 months and then taper to 0 in Q4 2018. As you can see, the tapering has left the total still above the lows of 2013. In 2018, we will see the lowest bond buying since before the financial crisis. Sometime in 2019, the net buying will be negative if everything goes according to plan.

The chart below compares the three major central bank’s bond purchases relative to their issuances. As you can see, the ECB and the JCB have been much more aggressive in purchasing government bonds than America has been which is why I think the ECB’s decision on QE is more important than the Fed’s unwind. The net issuance switched to being lower than the sovereign bond purchases in 2015 as the recent buying started ramping up. Japan has also had higher bond purchases than net issuances. Keep in mind, this is only looking at government bonds. The JCB buys stock ETFs and the ECB buys corporate bonds. They’ve more than made up for Fed tapering. It’s uncertain the exact dynamic of how the international central bank policies influence foreign markets. All we know for sure is while the ECB and JCB did their QE, the dollar rallied. This year the dollar fell as the ECB started to taper its purchases; they will probably end next year.

Taylor Is Getting His Time In The Spotlight

There was another switch in the odds for Fed chair on Wednesday as Powell’s chances fell by 9% to 43%, Warsh’s chances fell by 2% to 28%, and John Taylor’s chances increased by 10% to 13%. John Taylor has lingered in the single digits for the past few months; his peak was previously 10%. Taylor is getting his time in the spotlight now that he’s being considered. I wouldn’t be surprised if his odds surged temporarily like many of the other candidates. This is all speculation; speculation comes in waves. We won’t know for sure until the pick is made.