What we're witnessing right now in U.S. markets is a shift in the narrative structure around Fed policy, and it's hitting markets hard because the narrative structure around the Fed as an institution has never been stronger or more constant.
What if China floated the yuan? Is it really clear given the massive Chinese malinvestments in housing, in SOEs, in infrastructure, and numerous other things, that anyone knows for certain which way the yuan would trade if it freely floated?
After hitting all-time highs last week, the markets quickly sold off ahead of first-quarter earnings, with Alcoa kicking things off Tuesday. Both the S&P 500 (SPY) and Dow (DIA) were down a little over 1% on Monday’s close.
Back on March 13, David Malpass, president of Encima Global LLC, wrote an op-ed for The Wall Street Journal entitled “The Fed's Taper Is Already Paying Off”. In this op-ed, Malpass argues that the Fed’s purchases of securities, aka Quantitative Easing (QE), have inhibited bank lending to small businesses, aka job creators.
China’s central bank is considering regulations that would curb the development of China’s Internet banking innovation. Facing rising domestic financial risks, Chinese policy makers seem to be liberalizing the financial market with great caution.