Monthly Market Report - April 2015

25th March 2015

With commentary from David Stevenson

The thought of printing presses feverishly rolling off crisp new euro notes through the long spring nights evokes a wonderful set of images. Sadly back in the real world, the actions of the European Central Bank this month are rather less glamorous and picturesque. Imagine lots of smart but dour looking men and women staring intently at screens on the ECBs main dealing floor - accompanied by much mouse clicking and telephone jabbering as they buy every available bond.

Yes, the ECB has finally joined the modern world of central banking, cranking up the size of its balance sheet as EuroQE finally kicks into action. The desired objective is to kick start the Eurozone economy - more on that in this newsletter - but there is evidence that European economy is already slowly picking itself up off the floor. The massive bond buying programme will have another more direct impact namely to push up bond prices (especially sovereign bonds) and push down yields - to even lower levels. The frantic bond buying might also obscure the fact that Greece is once again slowly sliding over an abyss as its government flounders about looking for an excuse for a cash handout.

Lurking in the background of this manic bank activity is a more unsettling thought, namely currency wars. If everyone bar the yanks is happy to depreciate the value of their currency, surely that means sooner or later the US economy must feel the pressure as those US exporters see the price of their goods and services increase? Won't corporate earnings start to fall, dragging down US equities? And if the world's most resilient economy starts to stutter, won't we all be threatened by what seems like a zero sum game where FX rates are used as the blunt weapon for rebooting individual national economies? Follow this line of reasoning, and one can't help but expect another big jump in market volatility in the not too distant future.

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