Why it pays to keep an eye on central bank policy

Why it pays to keep an eye on central bank policy

The correlation between money supply and equity market returns has never been clearer.  Right now, central banks are intent on fighting inflation by hiking interest rates and shrinking their balance sheets – which has led to the current market sell-off. But when central banks change tack, we should see markets rally once more.

The US Federal Reserve activated a policy at the beginning of the year that can crudely be summarized thus: bring down the balance sheet and boost the US dollar. So far, the Fed has been successful on both fronts. The US dollar is close to parity with the Euro, is at a near four-decade high against the British Pound Sterling, and more than a three-decade high against the Japanese Yen. 


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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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