QE2 Backfiring? Seems so.
News of rising inflation dominating Asian, EZ, UK stock, bond markets, and here's how they're affecting FX and commodities...
Rising US bond yields too, as QE 2 loose money perception causing QE 2 to backfire in 2 key ways, with major ramifications for Forex and commodity markets.
Read and be warned.
Dublin, 13:00 GMT, 8am EST
QE 2 BACKFIRING?
All major stock indices lower over the past 24 hours for the same reasons: anxiety over Ireland solvency, inflation news causing markets to anticipate monetary tightening in China, the EZ, and UK. Rising US bond yields also argue against further growth-inducing stimulus, and suggest Bernanke’s new stimulus is backfiring in 3 vital ways:
--causing bond rates to rise as markets anticipate higher inflation from the growing US money supply - they were supposed to fall and ease credit and help banks repair mortgage portfolios as mortgages reset. That means:
--USD rising instead of falling, as rising bond rates in turn boost the USD as USD instruments now are yielding more - QE2 was supposed to keep the USD weak
--stocks falling instead of rising, because while higher US rates are good for the USD they are bad for US stocks
for full details. Here are excerpts:
STOCKS: US Down- US indices closed slightly lower Monday overall despite better than expected retail sales. Spiking treasury bond yields and a Moody’s warning about the negative effects of extending Bush-era tax cuts and the need to implement austerity measures weighed on markets. Tuesday futures point to a lower opening after the sharply lower Asian close and declines in European indices thus far today....
US Bonds: Down- Benchmark10 Year Note drops, with yield up from 2.824% to 2.9110% as bond markets appear to be anticipating inflation from the coming QE 2’s perceived increase in money supply.Thus QE 2 appears to be backfiring in 3 key ways as bond yields (and thus US short term rates) rise rather than fall, and those rising yields cause the USD to rise rather than fall., and US stocks to fall rather than rise...
Asia Stock Outlook: Down – A majority of major Asian indices closed lower, including the Nikkei, Hang Seng, and Shanghai exchanges, continuing to reflect anxiety over the EU and possible additional Chinese measures to slow inflation and growth. Rising US treasury bond yields and their suggestion of coming inflation from perceived expansion of the money supply from QE 2 may also be worrying markets
The latest plunge in Asia was attributed to a report that Chinese food price inflation is soaring and that the government will need to further stem the money supply to cool growth and inflation. The inflation theme today was further highlighted by a South Korean interest rate hike of 0.25% to 2.5% to stem inflation....
European Stock Outlook: Down–
European shares opened and continued lower for the same reasons as those pressuring Asian markets. Inflation is also in the spotlight in Europe, with EZ inflation at a 2 year high of 1.9% y/y in October, with steepest increases coming in ... Is US easy money the culprit?
Affects on Commodities and Forex: Ireland and inflation driven fears bring selloff in risk assets. Commodities mostly following stocks lower .....
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