LONDON Nov 21 Next year will be the first since
2006 that there will be no big monetary policy easing across the
world's leading industrialized nations, signifying the end of
the 35-year bull market in bonds, Bank of America Merrill Lynch
said on Monday.
Having driven interest rates to their lowest ever levels and
lifted purchases of financial assets to over $25 trillion this
year, central banks are finally maxed out, BAML said in its 2017
Any stimulus to the world economy will now come from
governments, who will use fiscal policy to wage a "war on
inequality", according to BAML.
"The era of excess central bank liquidity is ending. In 2017
markets likely will not benefit from a big monetary easing for
the first time since 2006," BAML's investment strategy team led
by Michael Hartnett in New York said in on Monday.
They reckon the Federal Reserve will raise U.S. interest
rates and expect the European Central Bank and Bank of Japan to
row back on their negative rate policies which resulted in more
than $13 trillion of government bonds boasting a negative yield
"Interest rates and inflation will surprise to the upside,"
they said, predicting an acceleration in nominal U.S. growth to
4 percent from 3 percent and non-U.S. growth to 7 percent from 6
Central banks around the world have cut interest rates
nearly 700 times since Lehman Brothers collapsed in 2008,
according to BAML.
Reuters calculations show that since the beginning of 2015
alone, 59 central banks have eased policy 214 times. Seventeen
monetary authorities have made their first moves this year.
According to BAML, this year marked peak liquidity, peak
globalization, peak inequality and peak deflation.
Next year, assets that have benefited from the deflation
trade and global zero interest rate policy (ZIRP) will be among
the biggest losers, while assets sensitive to inflation, Main
Street and fiscal largesse will do well.
Bonds will suffer most, while bank stocks, inflation-linked
bonds and shares in U.S. homebuilders will outperform, BAML
(Reporting by Jamie McGeever; Editing by Toby Chopra)