Markets are questioning central bank relevance

Defending real: Brazil’s central bank plans to sell US dollars from its foreign reserves for the first time in a decade in a move that will keep its currency from weakening too much. The real surged the most in more than four months, gaining 1.61%. — Reuters

European Central Bank governing council member Olli Rehn told the Wall Street Journal on Thursday that policy makers should come up with an “impactful and significant” stimulus package at their next monetary policy meeting in September. Normally such a pronouncement would spark animal spirits, sending riskier assets flying higher and causing government bonds to crater on the prospect for faster growth and inflation.

But instead, European equities fell, dragging the MSCI All-Country World Index to its lowest level since the start of June. Government bond yields in the eurozone and elsewhere continued their march lower. Taken together, the moves are a clear signal that the global economy may be too far along the path toward a recession for central banks to prevent it.