Money printing makes markets ignore reality

Tim Wallace
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STOCK markets around the world are booming despite shaky economic fundamentals, key central banking body the Bank of International Settlements (BIS) warned last night.

It fears the latest round of money printing in Japan, the interest rate cut in the Eurozone and more forward guidance on low rates from the Federal Reserve in the US have all stimulated share prices, rather than any underlying basis for increased investment.

“Markets are under the spell of monetary easing,” BIS said in the report. “Risk assets extended their rally as further monetary easing helped market participants tune out signs of a global growth slowdown. The spate of negative economic news between mid-March and mid-April did little to interrupt the rise of equity prices in advanced economies.”

It comes after Japan’s stock market almost doubled from November to May, in large part on a huge new wave of quantitative easing announced in April.

Meanwhile BIS’ analysts warned that investors’ holdings of US Treasuries remain at an all-time high, creating a major risk of losses when interest rates at last start to rise and bond prices fall.

And it noted the sustained easing is continuing to push investors into riskier bonds and corporate debt.