We came very long and hard into Q4 long EM and risk, but now things how run its course. This week we had the main move on ECB’s further easing and now also a China RRR cut.
Remember the majority(80%) of impact from QE and QE like changes comes on “announcement” – this according to staff paper from Bank of England.
Furthermore the market is hysterically on “how positive…” this is for the market – many of the same voices calling more pain on downside t- minus two month …..
But…. The main point: QE, negative yield, RRR cut will do ZERO difference to a market stuck in a permanent down-ward spiral of more debt, more printing of money, and less and less growth and productivity.
The theory in simple terms for central banks at zero bound and zero forever growth is to make sure is that the stock market goes up in order to balance out the massive debt. Yes it’s that simple…
The last two days action have made US Dollar 2% dearer in DXY terms – and the one thing we do know is a stronger USD is the last things this market needs – furthermore any directional change in US dollar – will work opposite for asset risk on/off inside one week…in other words… caution and neutral market stance is my view from here…even into Q4 manipulation “always higher” markets.