World Economy

Markets are a 'fix' and printing money is 'silly', says strategist

Capital expenditure in US is still weak: Expert

The trends in markets haven't changed and people still continue to buy yields and high growth, an analyst told CNBC on Wednesday.

"It's all a fix. Nothing has changed," Peter Toogood investment director at City Financial Investment Company joked when asked if he expected a breakout in the market anytime soon.

"There is no discovery, no real price discovery. And money printing is all a bit silly really so there we are."

A number of analysts have pointed out that markets were increasingly losing confidence in central banks and their monetary policies. Central banks around the world have taken measures including cutting interest rates to record lows and even into negative territory in order to stimulate ailing economies. Other measures such as bond-buying have also been launched with the aim of boosting lending and growth.

But with markets getting pushed into a world of further easing and low interest rates, analysts are starting to worry that central banks could soon run out of ammunition and the spotlight will then turn to fiscal stimulus.

"Even though central banks are claiming they will use all the tools they have to reach their inflation target, it seems they are more and more running out of options," Christophe Barraud, chief economist at Market Securities told CNBC via email. "Key rates are already very low, yields are at record low, therefore central banks don't have a lot of room to go further with rates or quantitative easing (QE), especially with banks struggling to generate profit with negative yields weighing dramatically on their margin."

Running out of options?

Ever since the financial crisis of 2008, central banks have had to come up with innovative ways of stimulating the economy. In the U.S., the U.K., Japan, euro zone, central banks have constantly tried to calm markets by reassuring that they are ready to act if needed. This has been followed by emerging economies such as India, China and Brazil that have cut their benchmark interest rates vigorously in order to deal with weak currency, high current account deficit and a slow economy. But how much further can these banks go?

"Central banks around the world are approaching the limits of monetary policy with the top 50 central banks having cut rates 672 times between them since the collapse of Lehman Bros. That equates to an average of one interest rate cut every three trading days. This has been combined with $24 trillion worth of asset purchases," Alex Dryden, Global Market Strategist at JPMorgan Asset Management told CNBC via email.

Dryden explained that with monetary policy approaching its limit, it was probably time for fiscal policy to pick up the growth baton as we saw in the case of Japan on Tuesday. Japan approved a $274 billion stimulus package in fiscal measures that left market participants disappointed with the yen hitting a three-week high against the dollar.

Photographer | Collection | Getty Images

While the disappointment was also due to markets expectations of a bigger stimulus, some analysts have said investors in general have lost faith in central banks but expectations still remain high.

"I feel that markets have outperformed expectations due to the huge amount of cash introduced by looser policy from central banks. Having become used to those policies, markets almost expect now that at very critical levels central bankers will shower them with more liquidity," Mihir Kapadia, CEO and Founder of emerging market firm Sun Global Investments told CNBC via email.

He further explained that the market realises that central bank interventions are losing their edge, but still have the teeth. "A deep correction in markets cannot be ruled out."

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