Here Comes The QE2!

The rally in risky assets gained momentum today following the dovish FOMC minutes published after the European close yesterday. It had become clear in recent weeks that a consensus was reached by investors that further quantitative easing was inevitable.

“This assumption appears to have been proved correct when the minutes pointed towards a distinct shift in the Fed’s policy stance.”

Gavan Nolan


Some members of the committee noted that if growth remained too slow or inflation too low then additional monetary policy accommodation would be appropriate “soon”. This suggests that a decisive majority is in favour of further easing before the end of the year.

QE is not the only “unconventional” policy tool available to Ben Bernanke and his fellow governors.

The committee also discussed ways of affecting short-term inflation expectations, including targets for the price level and for nominal GDP.

This was rejected by Bernanke earlier this year but he appears to have changed his mind. The delivery of policy may also change.

The committee’s view that policy would “be most effective if within a framework that was clearly communicated to the public” suggests a more gradual, transparent approach.

“Either way, the Fed’s expected monetary easing should be positive for risky assets judging by the experience of 2009,” Gavan Nolan at Markit Credit Research writes.

Earnings season in the US contributed to today’s rally. Intel Corp’s solid Q3 after the close yesterday boosted sentiment, with the firm’s profits and sales both slightly above expectations. More importantly, Intel didn’t disappoint with its Q4 outlook.

“Today we had the first major bank to post results, and JPMorgan did its usual trick of beating expectations.,” Mr. Nolan notes.

The bank’s net income of $4.4 billion exceeded consensus estimates, helped by declining credit loss provisions and a solid retail banking performance.

As expected, lower trading volumes led to a fall in profits at the investment bank.

JPMorgan’s spreads were little changed on the news and spreads were mixed elsewhere in the banking sector.

Bank of America, reporting next Tuesday, was wider while Goldman Sachs (also on Tuesday) and Morgan Stanley (Weds) were marginally tighter.

Unique Market Activity

Markit BOAT is a trade reporting platform which consolidates pan-European cash equity trade data from MTFs, Dark Pools and OTC transactions. The trading activity in this report took place on 12th October 2010 and was published by Markit BOAT on the same day. Trading activity reported with the ‘Market Condition’ flag is excluded from this report. Such trading activity is not relevant because the trade price and/or trading process does not reference or correlate with the then current market price.

The Unique Market Activity section lists stocks which were not active on Markit BOAT on the previous trading day.

Name Sector Volume Turnover €
TOSHIBA Industrials 6,756,400 24,376,310
TOYOTA Consumer Goods 849,850 21,321,440
TORAY INDUSTRIES Basic Materials 4,075,000 16,817,447
MITSUBISHI Industrials 690,500 12,491,010
NIPPON TELEGRAPH & TELEPHONE CORP Telecoms 298,500 9,657,792
SONY Consumer Goods 416,100 9,529,790
HONDA Consumer Goods 361,200 9,337,280
TDK Industrials 214,300 8,831,855
NTT DOCOMO Telecoms 6,878 8,254,325
MITSUBISHI ELECTRIC Industrials 987,000 6,597,168

Top 10 ETF

Name Volume Turnover €
ISHARES EBREXX GVG 5.5-10.5 540,077 69,215,068
DJ STOXX 600 OPTIMISED AUTOMOBILES & PARTS SOURCE ETF 266,389 46,737,774
LYXOR ETF SGI DAILY DOUBLE SHORT BUND 254,411 21,038,708
DJ STOXX 600 OPTIMISED INDUSTRIAL GOODS & SERVICES SOURCE ETF 177,121 19,649,896
DB X-TRACKERS II – IBOXX EU SOVEREIGNS EUROZONE 1-3 TR INDEX ETF 95,300 14,737,934
AXA EASYETF S&P GSNE 74,775 13,571,663
DOW JONES EURO STOXX 50 SOURCE ETF 301,900 13,503,715
DB X TRACKERS – DJ EURO STOXX 50 ETF 450,000 12,717,000
DJ STOXX 600 OPTIMISED UTILITIES SOURCE ETF 91,500 12,628,913
EASY ETF – GSCI FCP ETF UNIT CAP EUR NPV 334,926 10,419,548

Top 10 Trades

Name Sector Volume Turnover €
BBVA Financials 12,970,335 125,682,541
AKZO NOBEL Basic Materials 1,175,000 52,052,499
SNAM RETE GAS Oil & Gas 13,000,000 48,458,020
TELEFONICA Telecoms 1,972,702 37,362,977
BANCO SANTANDER Financials 3,556,756 33,326,803
E.ON Utilities 1,385,000 29,384,992
L’OREAL Consumer Goods 300,000 24,070,500
ENI Oil & Gas 1,411,438 22,723,749
DEUTSCHE BANK Financials 500,000 20,000,000
COLRUYT Consumer Services 100,000 19,025,000

Major Movers

Name Sector Volume Volume (T-1) % Change
NATIONAL GRID Utilities 9,637,110 775,700 1142%
TELEFONICA Telecoms 28,578,987 2,454,761 1064%
RSA INSURANCE GROUP Financials 10,881,950 1,352,935 704%
LLOYDS Financials 33,070,285 6,662,311 396%
INTESA SANPAOLO Financials 9,746,158 2,947,217 231%
RBS Financials 12,306,213 4,446,329 177%
SNAM RETE GAS Oil & Gas 60,991,980 25,797,181 136%
BBVA Financials 40,990,221 18,682,987 119%
BAE SYSTEMS Industrials 9,098,474 5,515,663 65%
VODAFONE Telecoms 26,191,430 18,644,216 40%
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