Capstone Online CFD Trading：QE4 has begun, and the Fed can't deny it!
2020-01-02 11:01 from：CAPSTONE author：Jack
Capstone Online CFD Trading：In the past two months, some investors in the market who were confused or convinced by the Fed have been repeating Fed Chairman Powell's argument that the Fed's recently launched $ 60 billion monthly purchase of Treasury bills is not a QE.
Powell once stated in a speech by the National Association of Business Economics on October 8: "This expansion of our table for reserve management should not be confused with our large-scale asset purchase plan after the financial crisis. Whether it is the recent Technical issues, or the purchase of Treasury bills that we intend to solve in order to solve them, will not have a material impact on the position of monetary policy. This is by no means quantitative easing. "
But in fact, from a market perspective, this is indeed quantitative easing. The Fed claims that its current behavior is not quantitative easing, while buying 60 billion U.S. Treasuries each month and reinvesting about 20 billion Treasuries and mortgage-backed securities (MBS), as well as tens of billions of dollars of overnight and regular repurchases. — As a result, the Fed's balance sheet is expanding at a rapid rate.
According to statistics, the Fed's balance sheet has grown by more than $ 400 billion in just four months, expanding at a rate much faster than the first three quantitative easings.
An interesting phenomenon is that at the same time that the Federal Reserve resumes quantitative easing, the stock market is also soaring. Since the Fed announced QE4, the stock market has risen weekly as the Fed's balance sheet expands. In the week of the stock market decline, the Fed's balance sheet also contracted. Torsten Slok, chief international economist at Deutsche Bank, said in a report:
"Since the start of QE4 in October, the S & P 500 index has increased by 1% for every 1% increase in the Fed's balance sheet, and the paths of action of both are surprisingly consistent."
This ultra-strong correlation between this market response and the Fed's actions (expanding the table) has never been seen before. It is meaningless for the Fed to deny that it is implementing quantitative easing.
Bank of America was the first to identify the Fed's expansion as quantitative easing, and other banks have subsequently joined. Even the Federal Reserve ’s long-time supporter David Zervos has publicly acknowledged that the Fed is indeed implementing quantitative easing.
Major investment banks pointed out that the hundreds of billions of dollars of funds injected into the market by the Federal Reserve in the past few months have led to repeated highs in the S & P 500, but the actual profits of companies have continued to decline, and almost all of the growth of the stock market comes from the Federal Reserve's watershed To the valuation expansion.
Dangerous, investors are becoming blind, stock market bulls are building their positions and betting that the Federal Reserve's QE4 will continue into the second quarter of next year. However, it should be noted that Morgan Stanley had previously stated: "The" financing "market will continue until April, after which the stock market may lose Fed support."
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