Who to Fear: Iran or the Fed? | The Big Conversation | Refinitiv

TL;DR

Geopolitical events and the withdrawal of emergency liquidity from the US funding markets pose short-term threats to equity markets.

Transcript

ROGER HIRST: The first trading day of 2020 saw the S&P make another new all time high before news of the U.S. attack on an Iranian general reversed the gains on the following day. Now, although geopolitics are dominating the headlines, it could be a change in momentum of the US Federal Reserve's repo operations that poses the greater short term thr... Read More

Key Insights

• 🍉 Geopolitical events are dominating the headlines, but the withdrawal of emergency liquidity from the US funding markets poses a greater short-term threat to equity markets.
• 🌐 Despite weak global manufacturing, markets experienced significant gains in 2019 due to central bank liquidity injections.
• 💖 The current re-steepening of the US yield curve has sparked concerns about a recession, but the dynamics differ from previous recessionary events.
• 🌐 Liquidity sloshing around the global system could potentially influence central banks to provide further accommodation to keep markets stable.
• 🏃 Past patterns in market performance, such as those in 2013 and 1998, offer potential signposts, but caution should be exercised before making investment decisions based solely on historical patterns.

Questions & Answers

Q: What are the main threats to equity markets in the short term?

The main threats to equity markets in the short term are geopolitical events and the withdrawal of emergency liquidity from the US funding markets.

Q: Why did markets soar in 2019 despite weak global manufacturing performance?

Markets soared in 2019 due to central bank liquidity injections, which offset the weak global manufacturing performance.

Q: How does the current re-steepening of the US yield curve affect market predictions?

The re-steepening of the US yield curve has sparked predictions of an imminent recession, but the dynamics differ from previous recessionary events.

Q: What impact does liquidity sloshing around the global system have on central banks?

Liquidity sloshing around the global system with low velocity could quickly build momentum and force the hand of central banks to intervene.

Summary & Key Takeaways

• While geopolitical events have caused market volatility, the withdrawal of emergency liquidity from the US funding markets is a significant threat to equity markets.

• Despite weak global manufacturing performance, markets soared in 2019, driven by central bank liquidity injections.

• The US yield curve has steepened, raising concerns about an imminent recession, but the dynamics differ from previous recessionary events.