Some Markets Are Now Set To Win No Matter What Happens


The greatest reason why the expected quantitative easing markets are cheering right now might not happen would be, ironically, very strong economic data:

Goldman’s Jan Hatzius:

Q: What would you have to see to make asset purchases unlikely in November?

Questions like this are always hard to answer in a specific way, as one can always imagine any number of events that could put the committee off, improbable though they might be. However, when we consider that Fed officials were willing to put this message out more than a month before the next FOMC meeting, knowing that markets would price in” asset purchases beginning at that session, their intent to proceed must also be fairly robust to any upside surprises in the economic data between now and then. We therefore think a pattern of exceptionally strong data, not fluky and not confined to one report, would be needed to push the decision off. Even then, asset purchases would still have a large probability of occurring in subsequent months.

Even if you’ve already known this, the implication of the above is that some stock markets, such as those in Asia, seem to be winning both ways.

The prospect of central bank support in sluggish developed markets like the U.S. & Japan sends Asian stocks higher, as we saw today. The idea is that easy monetary policy in developed nations can spill over into other nations, inflating asset prices and strengthening local currencies against the U.S. dollar.


Yet at the same time, very strong economic data, the one thing that could cause central bankers to abort their current path, would also be great news for Asian markets given that it would signal stronger than expected global growth. It’s as if some markets are set to win either way the coin falls… which is unsettling.

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