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The market is expecting monetary policy to ease worldwide

Dion Rabouin, author of Markets
Expand chart
Reproduced with permission from a chart by BlackRock; Chart: Axios Visuals

Two weeks ago, we wrote about the end of quantitative tightening, highlighting the European Central Bank and Bank of Japan's reversal of expectations to end their stimulus programs and begin reintroducing above-zero interest rates to their respective economies.

The big picture: The market also is expecting U.S. monetary policy to ease, with Eurodollars futures pricing an interest rate cut from the Fed as more likely than a hike this year as early as December.

On the fiscal side: The U.S. is coming off of close to $2 trillion in government stimulus; Japan recently signed its largest budget ever; and in Europe Italy and Spain are ramping up public spending, France has pledged to cut taxes and increase wages, and Germany is considering tax cuts.

What they're saying: "Global stocks kicked off 2019 with a bang ... A key impetus: a big shift in policy expectations across the globe," BlackRock's global chief investment strategist Richard Turnill wrote in a note to clients.

What's next? The easing of financial conditions globally are likely to stabilize growth in the second half of 2019, Turnhill says.

Yes, but: "We caution against chasing the rally in risk assets, particularly in areas vulnerable to growth downgrades, geopolitical risks or sudden shifts in supply/demand dynamics."

Go deeper: The end of quantitative tightening

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