Don't Expect A Central Bank Bailout This Time, ECB's Nowotny Warns
"Behind [the drop] there is an expectation in markets that central banks will increasingly raise interest rates, and there are certain good reasons for that. The U.S. is expanding. However, one has to say that the task of central banks isn’t to satisfy markets but to ensure overall economic stability. So if necessary, interest rates will have to rise and markets will adapt to that."
If the last week is any indication, the markets' adaptation to rising interest rates will be very painful indeed.
Causing further indigestion among the bulls, Nowotny also said that Euro-area inflation still has room to move higher "so the ECB is still on the careful side. But that certainly won’t last forever. In the foreseeable future there will be a need for the ECB to raise interest rates, as is currently being done in the U.S."
As for the ECB's QE, the Austrian said that the asset-purchase program will continue until September “and then we will discuss whether or not to end it. I make no secret of the fact that I don’t think we will need it, at least not in its current form. And only after we have ended it will the question of interest rates come into play”
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So, to summarize, a lot of warnings only this time not to the bears, but the bulls, which suggests that BofA implicit expectation (or rather hope) for an imminent central bank intervention may lead to great disappointment...
... especially among retail investors who - despite the XIV implosion - have rushed right back and are buying inverse VIX ETFs as if nothing happened.
Finally remember: "Powell Ain't Yellen" and maybe the Fed wanted this Correction. Why? Because as One River CIO Eric Peters wrote this morning:
... what no one said was what’s most obvious. For every bull, there’s a bear. And the Fed would far rather have a bear market hit before the $1.5trln tax cut, $300bln budget stimulus and $90bln hurricane relief turbocharges one of history’s longest economic expansions. Than after.
And if Peters is right, and the Fed is finally prioritizing the economy over the stock market, then "bombs away for risk assets" it is.