The chart below can be downloaded here.
We have long contended that asset purchases by central banks contributed – directly or indirectly – to gains in global stock markets (represented here by the MSCI All Country World Index). We know that correlation does not necessarily imply causation, but a visual inspection of this chart, which has been updated through October 29, suggests at least some link between balance sheets and markets. Intuitively, the notion that central banks electronically creating money out of thin air and then using that money to buy assets may have an impact on the price of said assets doesn't seem like too much of a stretch to us.
The recent dramatic reversal in global stocks corresponds with a dramatic reversal in monetary policy support by three key central banks. In this case, we believe correlation does imply some degree of causation.
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