Article / 21 September 2012 at 15:31 GMT highlights: Apathy returns as QE buzz wears off

Editor / Saxo Capital Markets UK
United Kingdom

MACRO: The best laid plans of mice & men… or when QE creates apathy


Neil Staines, Head of Trading at The ECU Group plc:

“The ECB, through its president Mario Draghi, have committed to do ‘whatever it takes’ to ensure the survival of the EUR. Indeed, most of the world's central banks have now embarked on unprecedented monetary easing - through the use of formal quantitative easing in the case of the UK, US and Japan, and backdoor QE from the ECB. However, the past few trading sessions, following on from the Fed’s QE3 and the extended QE targets in Japan, have brought apathy in place of the desired demand. Initially the performance of asset prices following QE3 were as expected, or at least in line with the correlated moves following QE1 and QE2. Yet now, with 10-year US yields at pre QE3 levels and the USD and risk sentiment little altered, markets are beginning to question the efficacy of global central bank actions. If the world's monetary authorities are continuing to promise ‘whatever it takes, the question that will likely rise from here is ‘what will it take’?”

CURRENCIES: CAD outperformance set to ease soon?


John Hardy, Head of FX Strategy at Saxo:

“CAD has been going strong on the anticipation and realisation of massive new easing from the world’s central banks. But historically, oil has been a key factor for CAD, and it is waving red flags. The trade-weighted CAD has performed very well lately on the strength of the ‘who’s devaluing the most?’ theme and as crude oil has surged again since the June lows, but note that we have seen a very significant correction lower in crude recently on growth fears and Saudi Arabia talking it down, and perhaps due to a very crowded trade. The trade in long CAD is also very crowded, as I have shown recently. And the run up in the CAD has outperformed the run-up in crude suggesting that when risk appetite goes into correction mode, CAD could be rather hard hit.”

COMMODITIES: Oil price succumbs to selling as QE meets reality


Ole Hansen, Head of Commodity Strategy at Saxo:

“The unleashing of QE Infinity, as it is now popularly being called, by the US Federal Reserve triggered a renewed push higher for crude oil. But just like HC Andersen’s fairy-tale 'The Emperor’s New Clothes' it did not take long before someone realised that things did not stack up and that QE alone was not going to carry oil prices higher, considering the still weak outlook for economic activity. The dislocation from fundamentals only lasted until Monday, when a huge sell order late in the day triggered what can best be described as a flash crash with Brent crude dropping by four dollars in seconds. In the end Brent crude fell by 9 percent to a six-week low at 107.10 before finding support, with the news flow also supporting the move. Saudi Arabia once again stepped in with some verbal intervention in order to talk the price of Brent crude back down to the 100 dollar level.”


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