There is no doubt that the weight of monetary policy is increasingly influencing the evolution of your investments. To the point that it can make or lose money depending on your decisions. Not only when it comes to the euro zone. But also on the other side of the Atlantic. The weight of the monetary factor is taking a greater incidence in recent years. All financial analysts are aware of the decisions made from the beginning European Central Bank (ECB) or the Federal Reserve of the United States (FED). Not surprisingly, a good part of the movements in world equities depends on their actions.
From this general scenario that monetary policy presents at the international level, the reduction of stimuli that are foreseen for the new fiscal year gains special force. In this sense, central banks have us waiting for any economic forecast in 2018. Policies in this economic area are emerging as one of the economic keys that will have to be taken into account for next year. To the point that will determine your entry or exit in the financial markets. Even at the price level in which you will formalize the operations. A task in which you must necessarily have a greater financial culture than through other investment strategies.
One of the clearest examples is represented by the European Central Bank (ECB). At the time it has already announced that the monthly amount of its public and private debt purchase program would drop from 60.000 to 30.000 million per month. However, it is not certain that this fact will develop during the next year. Not surprisingly, there are several voices that warn that this reduction it could carry out the interest rate hikes in 2019. In any case, depending on its application, it will be felt more or less in the equity markets.
Monetary policy: fixed income
Not everything in investing comes down to equities, far from it. But it also reaches fixed income as one of the alternatives that small and medium investors have. In this sense, it is a much more vulnerable asset since it influences these moments when interest rates are constantly low. Although a slight upturn is already being detected in this class of fixed income operations. As for example, in the banking products of a lifetime (short-term deposits, high-paying accounts or even corporate promissory notes). Well, at the moment they rarely exceed the 1% threshold.
On the other hand, it is also noteworthy that monetary policy has a total influence on the behavior of growth in the countries. To the point of giving guidelines on the strategies that governments have to apply. It can be said that some low interest benefits investors. While on the contrary, the big victims are the savers. Not in vain, they lose purchasing power with the contracting of the most relevant banking products. There is, therefore, an important divergence between the different agents of the economic process.
Impact on equities
Other totally different considerations are those that are linked to the equity markets. Because the current economic policy of low rates has caused the stock market to have appreciated during all these years. Despite everything, valuations are not particularly attractive on the stock market. To the extent that the greatest business opportunities are embedded in emerging markets. It is at these times where the greatest potential for revaluation is found. Due to the depletion of western financial markets. In some cases, above the 10% level. As for example, in certain Asian or Eastern European countries.
However, the application of this strategy in investment requires greater risks in operations. It is true that you can earn more money, but for these same reasons you can leave a lot of money on these special monetary trips. It is something, on the other hand, with which you will have to live from now on. The higher the profits, the higher the risks that you will have to assume from now on. Although on the other hand, a good part of financial analysts consider that the main value of these portfolios is in Europe and the United States. Markets that are the main recipients of your financial contributions.
More advanced the Federal Reserve
With regard to the policy of raising interest rates, there is no doubt that there is some other difference with respect to the monetary strategy carried out on both sides of the Atlantic. Because in effect, the Federal Reserve of the United States of America is more advanced and with all the ballots to start a standardization process of interest rates for the next financial year. With an earlier impact on the different financial assets. Both in what refers to fixed income, as in variable income. But also in other alternative financial markets, such as the currency with the emblem of one of the most relevant.
At the moment no major changes are expected in its price because they are measures that are expected by the different economic agents. This will translate into practice in that you will not have excessive surprises for your investments if you are exposed to this geographical area and in any of the chosen financial markets. Not surprisingly, these movements are expected to last a few days or weeks after executing the plans of the monetary organs of each country or common economic zone. From this point of view you should not have excessive problems to maintain your investments from now on.
Revaluation potential
In any case, the usual thing in these cases is that you continue to obtain profitability through these financial assets. Although perhaps not with the intensity that until now. With a lower risk compared to the markets of the old continent. In this sense, there are not a few market analysts who think that these effects have already been discounted from stock prices. Something that could have been carried out after several trading sessions in the last twelve months. In any case, you will not have any more problems that are of special importance. But on the contrary, it is a process that a priori is rather controlled by the Federal Reserve of the United States.
This does not mean that from now on, equities will not give you the odd scare. Because it will not be like that, but it will generate changes within a few days of its formalization. Beyond the trend that the American stock market has at that time. At the moment it is bullish with a historical record that it has reached in these months. A scenario that could not have been reached if the variations in monetary policy had been more radical than it has finally been. Anyway, it is a sign that will help you to know more reliably what are the levels to enter and exit the equity markets. And in this way, optimize all the operations that you have open.
Wait in the euro zone
This situation is the complete opposite of what really happens in the members of the European Union. Where the dates are less clear and some surprises may be generated. Among other reasons, the terms are more flexible and can even linger in time. Although its effects will be more active. With the consequent risk for movements in the stock market. You should also tell that it is something that can also happen with fixed income and alternative investments. With greater control over all your operations so that security is installed in your income statement.
In any case, nothing better than to be aware of all the signals that the conferences of the president of the European Central Bank (ECB), the Italian Mario Draghi on the intentions to vary the monetary policy of this part of the world. It will serve so that you are in a better disposition to update or vary your portfolio of values to improve the results of your investments. It is definitely the best strategy you can apply to anticipate these movements in the equity markets. Because it will also not be very complicated to carry them out because they are very accessible in a large part of the specialized media.
It seems that the lowering of interest rates will have to wait a few months, but at the moment there is no exact date to start this decision that seems to have already been taken by the monetary authorities of the old continent. Because the best decision to defend your interests will be based on trying by all means to anticipate the events that may arise from now on. It is one of your main objectives in the investment world.