This week’s chart shows the world’s four major central banks’ balance sheets, denominated in US dollars.  The ECB was the last central bank to begin expanding its balance sheet in response to the global financial crisis, waiting until 2011, almost three years after the others.  Furthermore, the ECB’s balance sheet began contracting at the beginning of 2013, while the others kept expanding, and is now roughly unchanged from its 2008 level.  In contrast, since mid 2008, the Fed’s balance sheet has increased by more than 4 times, the Bank of England’s by 3.2 times, and the Bank of Japan’s by 1.8 times.  If the ECB follows through with the liquidity measures announced last week, it would help take up the slack created by the Fed and Bank of England winding down their balance sheet expansion.

David Fuller's view

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How much does this matter?

With global GDP growth slow and the Continuous Commodities Index (Old CRB) re-testing its 500 support level for the last few years, monetary accommodation remains the most important factor fuelling the bull trend in most stock markets.