Central banks help risk sentiment with their cautious steps to normalisation

Central banks help risk sentiment with their cautious steps to normalisation

One asset that has very recently responded to central banks that have pulled back from overtly hawkish talk is gold

Markets are in buoyant mood again as stock indices close at all-time highs on a daily basis. The notoriously difficult September/October period came to a positive conclusion though some questions that have loomed over markets for some months remain. Persistent inflation is a critical one, and central banks across the globe are slowly responding by ushering in a period of progressively tighter monetary policy.

Last week, policymakers in the US, Canada, Australia and the UK warned us that the era of stimulus is coming to end. The financial crisis and more recently the pandemic have seen unprecedented levels of loose policy. But major central banks are now moving away from this, albeit at different speeds and by reigning in different policy levers and mechanisms.

As economies continue to recover, the need for continued monetary support wanes. As such, the world’s most important central bank, the US Federal Reserve, recently said it would fully end its emergency bond-buying program by mid-2022. Once that process is complete, maximum employment and inflation above 2.0 percent both must be realised and expected to persist into the medium-term