QE3 Not Effective

Published by Filipe R. Costa on Thu, 20/09/2012 - 11:02
bull bear fight

Daily Market Commentary for September 20: The anxiously anticipated monetary easing, that gave a boost to the markets last week, is losing steam and its effects are just vanishing as investors re-evaluate the full potential of it. It is becoming apparent that it will take more than just printing money to boost the economy and ultimately equities.

Although most of the effects coming from quantitative easing were already incorporated into equity prices, the strong commitment from the FED to buy $40 billion in mortgage securities each month should had provided an additional incentive for investors to return to the equity market, but it didn’t. Investors are still afraid of risky assets and the S&P 500 is rising just 1.7% over the last five days. If we look at Euronext 100, for example, it is flat over the same period, and the French CAC 40 is negative by 0.34%. These are not really good signs and this morning equities are taking a dive with the FTSE currently trading at 5,856, down 32 points.

Economic data has been mixed yesterday. US existing home sales rose more than expected to an annual pace of 4.82 million, beating expectations. Building permits decreased to 0.803 million but still above the market consensus. Finally, housing starts rose to 0.750 million but came short of the mean consensus.

Earlier in the morning, a couple of PMI data showed how bad the European economy is, with all indices pointing to contraction. In France PMI manufacturing numbers came at 42.6, down from last observed 46.0. In Germany the index rose a little to 47.3 but still showing recession and a loss of momentum in the country. Finally, the number for the whole EU came at 46.0, recovering from 45.1. In Spain, a 10 year bond auction was a success in the morning with the government able to put  €850 million in the market at 5.67%.

For now equities are recovering from the lows registering in early trade but the weakness remains.

Name Last price Close Price % 5-Day % YTD %
Nasdaq 100 Index 19/09/2012 2864.03 0.23 2.59 25.74
DAX (Xetra) 19/09/2012 7390.76 0.59 0.64 25.3
S&P 500 19/09/2012 1461.05 0.12 1.7 16.18
Gold (LBM) $ 19/09/2012 177270 0.05 2.34 13.13
Euronext 100 19/09/2012 668.55 0.47 -0.03 12.77
CAC 40 19/09/2012 3531.82 0.54 -0.34 11.77
Dow Jones Industrial Average 19/09/2012 13578 0.1 1.83 11.14
Nikkei 225 19/09/2012 9232.25 1.19 3.04 9.19
FTSE 100 19/09/2012 5888.48 0.35 1.84 5.67
AUD/JPY - JPY per Australian $ 19/09/2012 82.236 -0.12 1.01 4.78
GBP/USD - US $ per £ 19/09/2012 1.6226 -0.11 0.75 4.48
AUD/USD - US$ per Australian $ 19/09/2012 1.0492 0.37 0.3 2.79
Crude oil (Brent) Composite 19/09/2012 10940 -1.57 -4.82 1.85
EUR/USD - US$ per Euro 19/09/2012 1.3062 0.11 1.23 0.83
EUR/CHF - Swiss Fr per Euro 19/09/2012 1.2113 0.02 0.18 -0.31
USD/CHF - Swiss Fr per US$ 19/09/2012 0.9276 -0.08 -1.02 -1.07
EUR/GBP - £ per Euro 19/09/2012 0.8053 0.26 0.51 -3.35
Crude oil (Light Sweet) Composite 19/09/2012 9216 -3.53 -4.94 -6.91