Latest rebalancing cycle unlikely to lead to 'V-shaped' recovery

Recent decisions by both the Federal Reserve and the European Central Bank have helped break the trend of tightening global liquidity conditions.

The Fed has acknowledged the current level of US economic growth, alongside inflation, does not warrant the relatively aggressive monetary tightening it had signalled to the market. This has stopped the continuous appreciation of the US dollar - at least for now - and gives the oil price room to rise. It is also positive for inflation-linked bonds due to heightened inflation expectations, which had previously been highly correlated with the oil price. Credit markets have been a further beneficiary, with spreads tightening, which is supportive for emerging markets. The dampener on the ...