October 30th, 2009 by AdvisorAnalyst

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Two articles published within a few weeks tell a compelling story of cause and effect. The first by Michael McKenzie, FT.com, is a history lesson. The second, by one of the finest financial columnists, Ambrose Evans-Pritchard, serves as a warning.

Central banks fuel risky assets, By Michael Mackenzie in New York

October 16 2009 20:56 | Last updated: October 19 2009 09:24

Thanks to generous liquidity support from central banks, risky assets have been moving in a broad relationship for some time, and this week several markets reached or approached key levels.

Of all the major markets, equities are the main barometer of risk taking. This week shares in Australia, Hong Kong, India, Russia, Europe, London, Brazil and New York all hit fresh peaks for at least the past 12 months.

Rising appetite for risk was perhaps most apparent in the US crude oil price breaking above $75 a barrel, which was its high in late August and had presented a barrier for oil bulls since June.

Central banks chill asset rally, by Ambrose Evans-Pritchard, October 30, 2009

The liquidity tide is turning. Authorities across large parts of the world have either begun to tighten the spigot or are taking steps to wean their economies off emergency stimulus. This is a treacherous moment for markets.

Oil-rich Norway raised rates a quarter point to 1.5pc on Wednesday, the first European country to move since the crisis. Governor Svein Gjedrem said asset prices have “risen sharply and probably excessively”. The Norges Bank is taking pre-emptive action to choke off a property bubble, though manufacturing remains sluggish. The era of “asset targeting” has begun.

Australia took the plunge earlier this month. It dodged recession over the winter and has since been lifted by China’s torrid demand for commodities. Israel kicked off in August.

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Source: FT.com | Telegraph UK

Read more from the author/contributor here.

Tags: Ambrose, Asset Prices, Brazil, Cause And Effect, Central Banks, China, Commodities, Crude Oil Price, Emerging Markets, Evans Pritchard, History Lesson, India, Last Updated October, Late August, Liquidity Support, Michael Mackenzie, Michael Mckenzie, Norges Bank, oil, Quarter Point, Risky Assets, Russia Europe, Spigot, Taking Steps, Telegraph Uk, Torrid
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