Quantitative, Qualitative or Just Desperate?
The same headline phrase was constantly repeated on the mainstream media tv and radio channels on Thursday after the BoE MPC announced it was reverting back to the last trick in it’s toolbox, more quantitative easing. “The Bank of England has announced it is to inject £75 billion directly into the UK economy by way of QE in an effort to stave of the UK entering into a ‘double dip’ recession..” Moving aside the fact that (similar to the USA) the UK only moved out of recession ‘technically’ through the previous QE programme and zirp which hasn’t created the jobless recovery many market sages thought possible, there’s one other aspect of the media description which is equally wrong; the £75 billion will not be “injected into the economy”, it is quite simply the start of a bank bailout programme by any other description.
The positive to come from the announcement is that the BoE has attempted to get ahead of its curve and obviously wasted no time in reacting to internal (for their eyes only) intel highlighting just how many days the likes of RBS and Lloyds TSB had left until they did a ‘Dexia’. Actually doing a ‘Dexia midnight runner’ would be difficult given the fact that the UK (already) state owned banks mightn’t have much collateral to even put into a bad bank. What is for sure is that the latest round of QE will not reach main street, it’ll be temporarily used to provide liquidity and avoid questions of solvency with regards to UK banks. Indirectly money may reach certain preferred businesses, the amount may even total £75 billion, however, that’s an admission that the bank’s shutters are down and they’ll only lend in equal amounts to tax payer bailouts.
The European Central Bank is providing governments and banks more time to recapitalize as Greece edges closer to default. The ECB said on Thursday it will reintroduce year-long loans, giving banks access to unlimited cash through to January 2013 and resume purchases of bonds to encourage lending. The European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalised. The euro strengthened against the dollar and yen on the speculation a reintroduction of loans to banks by the European Central Bank will support crisis-ridden markets.
U.K. stocks completed their biggest two day gain since 2008 as the Bank of England expanded its bond-purchase plan and investors speculated European Union policy makers will finally contain the region’s debt crisis. The FTSE 100 Index advanced 189.9, or 3.7 percent, to 5,291.26 at the close in London extending yesterday’s 3.2 percent climb for the largest two-day increase since December 2008. The gauge lost 14 percent in the third quarter, its biggest drop since 2002, amid concern Greece’s debt woes will spread to other countries in the region and that the global economy is stalling.
In other European markets the STOXX closed up 3.18%, the CAC closed up 3.41% and the DAX up 3.15%. The US SPX closed up 1.8 percent. The Russell 2000 Index of smaller U.S. stocks extended a three-day advance to 11 percent, its best since 2008. A jobs report which came in slightly ahead of expectations and testimony from Tim Geithner in which he stated that;
The direct exposure of the U.S. financial system to the countries under the most pressure in Europe is very modest. Our firms, and this is true across the largest institutions in the United States, again are in a much stronger position if you look at their capital levels, levels of leverage, how they’re funded.
Morgan Stanley was at one point down 47 percent this year through Monday and Tuesday. Bank of America, based in Charlotte, North Carolina, was down 57 percent. Both banks’ share price improved by circa 5% on Thursday.
The spreading protests against Wall Street show that the American people are angry about worsening economic disparities, Vice President Joe Biden stated on Thursday in Washington.
Let’s be honest with each other. What is the core of that protest? The core is the bargain has been breached with the American people. The American people do not think the system is fair, banks are part of the problem in the economy. At a minimum they are tone deaf.
Looking towards the London morning session the UK FTSE equity index future is currently up 0.7%, the SPX equity index future is flat. The data releases that could affect market sentiment in the London session include the following;
09:30 UK – PPI Input September
09:30 UK – PPI Output September
For the UK input PPI figures a Bloomberg survey of analysts yielded a median estimate of a month on month figure of 1.2%, as compared with the last figure of -1.9%. The year on year figure predicted was 17.1% from 16.2% previously. For UK output a Bloomberg survey of analysts forecast a year on year figure predicted was predicted to be 6.2% from 6.1% previously. The month on month figure predicted was 0.2% from 0.1% previously. The ‘core’ month on month figure predicted was 0.1% from 0.2% previously. The ‘core’ year on year figure was expected to be 3.7% from 3.6% previously.
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