Presently, the global financial markets experience difficult times. Whereas the probability of the next collapse increases, the effect triggered by the softening Fed's rhetoric is wearing off.
The beginning of this year was hopeful for the financial markets. However, it all ended quite quickly. At the moment, market participants reflect on the words said by Jerome Powell, the сhairman of the Federal reserve. Last week the Fed’s head announced that the regulator would stop reducing its $4 trillion portfolio. Experts fail to forecast what effect this measure will have in the near future. Currently, the Fed is carrying out an operation that is the opposite of QE. Nonetheless, it has a negative impact on the market state. Analysts record the lack of new liquidity.
Market participants are puzzled whether the Fed is going to implement its balance-sheet reduction in a gradual way or stop this process at once. Experts believe that gradual unwinding is the best option as it will allow to reduce volatility as well as to find out the level of demand for reserves. However, Thomas Simons, an economist at Jefferies money markets, believes that a smooth exit from the process of reducing the balance sheet is going to be difficult for securities with different maturity terms.
According to experts, the uncertainty in the global market will remain until the next meeting of the Federal reserve scheduled for March 19-20 this year. Investors are expecting to hear more detailed explanations from John Powell.
Meanwhile, trade negotiations between the US and China seem to affect the market negatively as well. Conflicting reports about the negotiations and their possible outcome add fuel to the fire. The reason for the downfall of the financial markets lies in the fact that the utmost optimism has been already priced in the stock quotes, while market players just need to fix the profit.
