Will the QE trick continue?

At the beginning of the year, many analysts and commentators were expecting not only an acceleration in the US’s rate of economic growth but also a significant recovery within the beleaguered Eurozone economies.

Unfortunately, neither of these forecasts have come to pass and even in Japan, in which hopes for this year had also been particularly bright, we have found that the latest growth figures have tended to disappoint rather than excite. In the emerging markets, there have been disappointments – bordering on crises – in several of the currencies and economic growth has suffered in many of the countries as a result.

However, despite these various growth disappointments, global equity markets have in general continued to perform well this year. 

We firmly believe that the reason for this dichotomy between the behaviour of the risk markets and the underlying economies continues to reside with the central banks. For example, at present the US Federal Reserve is continuing to purchase more than a trillion dollars of debt securities per annum and in so doing the Fed is implicitly absorbing much of the supply of “high quality” bonds from the markets.