01 September 2010 at 7:23 GMT
Benchmark indices briefly dropped after the release of FOMC minutes where investors were speculating (hoping) for another round of quantitative easing. In our view QE2 will eventually come around, but not just yet due to the upcoming midterm election. Equity markets will go higher if QE2 is announced since asset prices are generally moving higher after such an operation, but companies are not going to have their long-term profitability or sales changed by this.
The Asian markets rallied overnight on the back of better than expected PMI numbers from China and better than expected GDP numbers from Australia. Please be aware that the trend has not changed – rather this is a bear market rally and they are usually quite violent. With the expectation of a surprise to the upside in today’s ISM numbers this relief rally will most likely gain even further momentum.
Read the full Morning Note here.
Read Charts of the Day here.