Poloz on recent market moves
Higher long-term bond yields, rising USD vs EM and recalibration in equity markets are symptoms of normalization
Investors can no longer expect long-term yields to be suppressed by extraordinary monetary policies
A decade of monetary policy action is finally taking deflation risk off the table
It is only natural to expect more volatility in stock prices as support is removed
If investors now think expected earnings need to be discounted by higher rates, it lowers the price the are prepared to pay
Repeats that trade risks are two sided
Notes "worrying tendency" among some emerging market governments to encroach on central bank independence
Key implication of divergence of growth between US economy and rest of world is stronger USD; this has caused strains for some emerging economies which will continue
Market action shows considerable evidence of investors' preoccupation with the downside risks associated with international trade actions, both actual and threatened. This preoccupation is understandable
Central bankers love to say they won't come to the rescue of markets but when the chips are down, they always do.
Here's exactly what he said about the US dollar:
"A key implication of the divergence of growth between the United States and the rest of the world is an appreciating US dollar. This has led to strains for certain emerging economies, and we expect these to continue. Thus far, however, we have seen few signs of the strains becoming generalized across all emerging markets," he said.
He highlights only two instances of problems in emerging markets -- Turkey and Argentina and says that part of the reason is that those banks have problems with independence. However I'd stronger argue that the problems with independence are symptoms of problems, not the cause. The root causes of their problems are large current account deficits.
