Citi: “Expect Markets To Flounder As Central Banks Try To Exit”

Tuesday, June 20, 2017
By Paul Martin

by Tyler Durden
ZeroHedge.com
Jun 20, 2017

Earlier today, we showed once again this time with Citi’s assistance why the global credit impulse may be the most important variable for the global economy: as Matt King state simply, “the change in the flow of credit drives GDP growth” and just as importantly, “the credit impulse also often correlates with asset prices.”

Now, as a follow up to our earlier piece laying out the basis behind the global credit impulse, we present Citi’s thoughts on what happens next, now that the impulse has turned negative.

We start with a key question: “with the impulse now negative, why are markets not weaker?” King’s answer is two-fold: either the lag this time is longer than usual, or the market has simply lost its discounting ability (a point he touched on last week), or as he puts it now “some markets seem to be following a different beat”, and cautions that “Some signs even the link to asset prices now weakening.”

King’s next observation is one we have made countless times: in a time of declining private credit creation (due to either lower demand or tighter supply), impulse creation is entire in the hands of the public sector, and thus central banks. In short: “markets are in thrall to central banks.”

The Rest…HERE

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