26 October

So the ECB hinted at more QE last week, with December slated by many as the time when confirmation of an extension of Eurozone policy easing will come. This should both alarm and, well, not alarm in equal measure. I’ve been trying to work out whether this is bullish or bearish all weekend, and the conclusion I’ve come to is that it’s great for the stock markets, while unlikely to do much in the way of economic recovery. But what is economic recovery anyway? Is it a set of particular numbers? Or is it to do with a people’s quality of life? Right now, things are actually pretty good. But the global economy is ‘struggling.’

Is QE good for the markets?

Of course! People love cheap stuff – just walk into a branch of Poundland or talk to a middle class person about Aldi or Lidl, and you’ll be reassured that’s true. Money itself is no exception. The fact that both the US and UK undertook 3 rounds of QE each before, er, going on their lunch break points towards the ECB’s particular bunch of ageing economists doing the same. It’s all they know. This is great for businesses and people who want to borrow and invest but there is an issue: that many are bemoaning a sluggish economy while not really stopping to view the facts.

Fact: Interest rates are low – do you like paying a lot of interest, or paying a little? And if you want  to talk about savings, then consider that most people have far more debt than they do money in  savings accounts…

 Fact: Inflation is low – do you like it when prices rise quickly, perhaps even faster than your pay  check, or do you like prices to rise slowly, if at all? What about when prices fall?!

 Fact: Commodity prices are low, really low – do you like paying £1.30 a litre for your petrol, or  would you rather pay less?

Some may even deem it fortunate that the above economic ‘bugbears’ don’t appear to be getting sorted out by loose central bank policy both in the US and Europe. Well, do you know what? It’s about to get a whole lot looser! Consider where the UK 100 is today. It’s already nearly 700pts off its 24 Aug lows. There are reliable hints that the ECB will further loosen monetary policy, reliable because super Mario Draghi said it himself. The US Fed is too scared to hike US rates. China has just cut its own benchmark interest rate, again. Economic recovery or not, the implications for the stock markets are immeasurable.

Augustin Eden, Research Analyst