Central bank action will drive global equity markets

Significance

This volatility is driven by expectations of further monetary stimulus in response to a slowing economy. Despite persistent concerns about the fallout from the anticipated tightening in US monetary policy and many country-specific risks, such as the standoff between Greece and its creditors, equity market sentiment remains supported by accommodative monetary policies worldwide and expectations of the US monetary policy tightening being gradual.

Impacts

• Market volatility could increase further, as better-than-expected economic data in the euro-area vies with weaker-than-anticipated US data.
• Decoupling of surging equity prices and weak economic fundamentals threatens the rally's sustainability, increasing scope for volatility.
• This decoupling is most pronounced in China, where weak economic data prompt buying of equities in anticipation of stimulus measures.
• The greatest risk in equity markets is uncertainty surrounding US interest rates and their impact on emerging markets.