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’Two views on QEased commodities prices…
The role — if any — of easy monetary policy in pushing up commodities prices has become a hot-button topic recently. So here are two pieces of recent research on the subject, both from central banks.
Further further reading
For the commute home, we wish you a great weekend,
- Treasury + Fed = better QE.
- Gulf SWFs are adopting more active investment strategies.
- Is the dismal science really a science?
- March Madness,
The Bank of Japan – almost back to 2004 numbers
The Bank of Japan unleashed ¥28,000bn ($345bn) of fresh liquidity through its emergency quantitative easing operations over the course of the past week.
Which means we’re already not far off from the ¥34,000bn that the central bank was pumping into the market at the height of its QE programme back in 2004/2005.
Prepare for a major market over-reaction
Albert Edwards is back – back, that is, from his annual search for January sun to counter the effects of Seasonal Affective Disorder (SAD).
And the sojourn looks to have been partly successful. Obviously the Soc Gen strategist remains bearish — he reckons the long-term downtrend in 10-year bond yields is under serious threat.
On not accepting QE3, with Bob the Bear
Remember when Bob the Bear went bullish?
Bob Janjuah and Kevin Gaynor — global macro strategists formerly of RBS, now based at Nomura — said in October that markets were set to turn strongly ‘pro-risk’,
QE counter-factuals and counter-arguments
Here’s a pop quiz for macro fans: Federal Reserve asset purchases were equivalent to an X hundred basis point reduction in the federal funds rate and contributed Y million jobs. What are X and Y?
In a recent paper on zero lower bound events and the impact of quantitative easing,
Everyone should relax about rising nominal yields
Dan Indiviglio writes on what is turning out to be a common (and reasonable) worry about the rising yields on US Treasuries in the aftermath of the tax cut deal:
This must be pretty discouraging for the Fed.
Central bank mash-up, carry bash-up
China started it.
Quantitative tightening has been bandied about recently as the way in which the People’s Bank of China is combating QE. At a time when rate hikes may not be enough, other tools have to be considered for dealing with surging capital inflows in search of Chinese yield.
Eschatology in the market
Who knows: 2011 might just be an all right year for risk assets, especially if there’s a second stimulus goin’ round.
But how about that 2012 thing, eh?
This rang a little odd in an otherwise ‘stay overweight’ equities call from Credit Suisse strategist Andrew Garthwaite and his team:
Euribor, or not putting the ‘E’ in Europe’s non-QE
That’s three-month Euribor — the Euro Interbank Offered Rate and an an interest rate for term loans between banks. It rose to 1.027 on Thursday, ahead of that European Central Bank meeting, and has stuck at the same level on Friday.
[Wilmot's PMI tour] Shadow money and inflation
Two years on from Lehman’s spectacular demise, global investors’ expectations for future US inflation are – still – all over the map, or at least fabulously fat-tailed.
Some fear runaway inflation;
The SMP to the rescue? [updated]
Thursday’s ECB meeting is taking on increased importance as tensions in the eurozone show no signs of easing.
Indeed, it’s becoming clear that many investors have lost faith in the EMU project and that market confidence can only be restored if there is a strong and forceful response from EU policymakers.
QE to set sail in Europe?
Spot the odd one out in Friday’s early price action.
That’s right — it’s Spain.
RTRS-SPANISH/GERMAN 10-YR GOVT BOND YIELD SPREAD AT NEW EURO LIFETIME HIGH OF 265 BPS, 9 BPS UP ON DAY
The 10-year bond yield has now risen over 100 basis points since the start of the month,
The (mostly) unrevealing FOMC minutes
The FOMC minutes contained little that was new or shocking, mostly confirming what was already known.
The committee reduced its forecasts for growth and inflation in the next three years, and increased its forecast for unemployment.
The QE2 sails right over the 35 per cent rule
How we’ve waited. The Federal Reserve Open Market Committee’s has unveiled $600bn — $900bn counting MBS re-investments — of Treasury purchases to combat weak inflation.
Here’s the key bit from the FOMC statement:
The unsinkable, unfalsifiable HMS QE2
Did you hear the one about the superliner that squeezed under a Danish bridge with just an inch and half to spare?
It’s getting that way with HMS QE2.
Exhibit A — More decent UK data in the shape of a manufacturing PMI,
US Q3 GDP results are in, bang on forecast [updated]
The US economy grew exactly as analysts predicted in the third quarter. Though likely not as much as the Federal Reserve wanted.
GDP expanded 2 per cent on an annualised basis, according to flashes via Reuters:
QE-EM inflation risk, charted
Here’s one way to consider the damage inflation might wreak on emerging markets — something that might just be on investors’ minds now that the structural trend is to diversify into EM debt.
Via Fitch Ratings,
The euro as ersatz gold
Hey, it’s Morgan Stanley’s idea, not ours.
Though it is an interesting way to ponder what’s going to happen when the Fed unleashes QE with two of the three other G4 central banks declining to join in.
Gilts, bashed
In a way, you sort of have to give gilts credit for hanging on to the anchor even as HMS QE2 sails out of reach, out of the harbour, into the distance, based on stronger UK GDP data.
Sure, 10-year gilts are already selling off — from historic lows — chart via Bloomberg (click to enlarge):
Blast off – UK GDP rocket
And it was RBS analysts wot won it.
Economic growth in the third quarter chewed up consensus forecasts and spat them out on Tuesday — recording 0.8 per cent above a predicted 0.4 per cent.
Just ignore all those austerity clouds,
Smithers vs Wolf
A pessimistic Andrew Smithers is even more pessimistic than usual in his latest World Market Update, predicting a coming US asset bubble as a result of the Fed’s current trajectory, towards further quantitative easing.
Market wets itself over UK QE
Here’s one for the ‘weird QE effects on equities’ files. One for those already identifying higher inflation expectations even before QE is announced, too.
Presenting the incredibly inflating share prices of UK water companies, as noted by Evolution Securities on Monday (chart via the FT/Reuters):
Can gilts go on?
UK gilts are performing better than they have been for decades.
But… gilts might also be just about on the brink of a pullback in their hour of triumph.
And not for the reasons you’d perhaps expect.
Correlating causality, QE2 edition
From a Deutsche Bank note on equities (click to enlarge chart):
And another chart (also click to enlarge):
Oh, and a FT Alphaville health warning on correlation and causality.
Auf QE-dersehen, pet
First time since May 2009, this. The five-year gilt yield has fallen under the yield on five-year Bobls (chart via Bloomberg, click to enlarge):
Meanwhile, 10-year gilts are trading the tightest to their bund peers since late 2009 (chart via Bloomberg,
And now for something extremely bearish…
… from John Taylor, the chairman of FX Concepts, one of the world’s biggest currency hedge funds.
Some of this stuff would make even Albert Edwards blanch, but given Taylor’s track record, he’s more than qualified to pontificate on the FX market.
On to Plan B already, George?
Related link:
Osborne enters unknown and cuts £81bn — FT Alphaville
Gilt-free bloodshed
In public policy terms, this will probably be the most important day of this parliament, possibly of this decade…
– The Guardian.
George Osborne is polishing his scythe… The Chancellor must now try to kill the rapacious £155bn deficit by a thousand cuts…
Duking it out on the MPC
Finally, the three-way split into one hawk, one dove — and seven undecided — has occurred at the Bank of England.
From the minutes of the Monetary Policy Committee’s October meeting:
Seven members of the Committee (the Governor,