Central Banker Uncertainty Translates To Global Market Volatility

Investors have taken very little comfort from the inaction of monetary policy officials from four major global economies this week. Officials from the United States, Japan, the U.K. and Switzerland all decided to leave policy unchanged this week ahead of the highly-anticipated U.K. “Brexit” vote next week.

A U.K. vote to leave the EU would likely disrupt global markets in a major way, and the latest polls out of Britain show the vote split at or near 50/50. However, as Bloomberg’s Rich Miller reports, there is much more for policymakers to be concerned about than a Brexit.

“We are quite uncertain where rates are heading in the longer-term,” U.S. Fed chair Janet Yellen told reporters on Wednesday. In addition to uncertainty surrounding the Brexit vote, Yellen said rates could stay depressed in the longer term due to slow productivity growth (even with unemployment at historically-low levels) and aging global societies.

Related Link: Goldman Sachs: 3 Options Trades To Make Ahead Of The Brexit Vote

In Japan, officials are walking a razors edge when it comes to debt. The nation’s balance sheet now holds roughly 80 percent of its gross domestic product. Despite aggressive stimulus, including sub-zero short-term interest rates, inflation in Japan remains lackluster.

Rabobank Group analyst Michael Every said Japan can’t afford even the smallest monetary policy mistake at this point.

“If they make any more policy errors or missteps, or they don’t jawbone correctly, the real economic damage could be quite significant at a time the economy is already weak,” he said.

In the middle of all this uncertainty, there is one certainty: investors are uneasy. The iPath S&P VIX Short Term Futures TM ETN VXX is up 21.3 percent since June 6.

Disclosure: The author holds no position in the stocks mentioned.