Disappointed with the recent slump in equity markets?
Blame the Fed. For as Nomura’s rates team note on Wednesday — continuing an FT Alphaville theme — central banks just don’t seem to be getting the same, err, market bang for their buck as they used to.
Where once the mere hint of quantitative easing would make stock investors salivate, the Federal Reserve’s August 10 ‘QE II/lite’ announcement fell much flatter. Likewise, Tuesday comments from the Bank of England’s Martin Weale seems to have sent equities sliding rather than soaring.
Anyway, here’s Nomura’s rates strategy team lead by Nick Firoozye:
An interesting dynamic is starting to take hold with respect to the central bank rhetoric, with “dovish” interpretations no longer necessarily acting as a boost for risk asset markets. When QE policies in particular were first brought up in 2009, we note the positive impetus that was provided to both bond and equity complexes. However, as subsequent announcements have come out, the effect has tended to taper, with the S&P for instance down almost 6% since the “QE Lite” policy was announced back on 10 August. Indeed, in the most recent session the FTSE was in reverse, as Gilts drew support from double dip comments from new BoE/MPC member Weale. We can only put this down to the markets taking such talk as a reflection that underlying conditions are worse than first feared, rather than as reassurance.
Does that mean we have to wait for an actual economic recovery before we get a rally?