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.”
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.
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.
|TORAY INDUSTRIES||Basic Materials||4,075,000||16,817,447|
|NIPPON TELEGRAPH & TELEPHONE CORP||Telecoms||298,500||9,657,792|
Top 10 ETF
|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
|AKZO NOBEL||Basic Materials||1,175,000||52,052,499|
|SNAM RETE GAS||Oil & Gas||13,000,000||48,458,020|
|ENI||Oil & Gas||1,411,438||22,723,749|
|Name||Sector||Volume||Volume (T-1)||% Change|
|RSA INSURANCE GROUP||Financials||10,881,950||1,352,935||704%|
|SNAM RETE GAS||Oil & Gas||60,991,980||25,797,181||136%|
- QE hopes spark FTSE rally, JP Morgan beat views (reuters.com)
- QE2 Means A Lower Dollar and Higher Gold Price (blogs.forbes.com)
- Here’s Why Quantitative Easing 2 Will Fail Spectacularly (businessinsider.com)
- Ins and outs of QE2 (theglobeandmail.com)
- QE-stion marks (ftalphaville.ft.com)
- Stephen Roach: QE1 Didn’t Work, QE2 Won’t Work, And QE 12 Won’t Work Either (businessinsider.com)