From the Southbank Private Briefing (Great Britain)- How is quantitative easing (QE) as we know it going to die? Will it be with a bang or with a whimper? And will it take inflated bond prices with it when it goes?
All important questions raised this week in financial markets. You saw more signs that central banks around the globe are out of ideas and out of tools to try and boost growth.
Driven by technology, demography, and the debt hangover from the last bust, the world wants to deflate. Japan’s central bank announces its comprehensive review of QE on 21 September. Long-term Japanese bond yields have, astonishingly, started to move up. And against the express wishes of Haruhiko Kuroda (the Bank of Japan’s governor), the yen is strong.
QE may be defeated in Europe first. The best evidence this week came from European Central Bank (ECB) president Mario Draghi. A week after the ECB revealed its bond buying programme had surpassed the €1 trillion level, Draghi conceded that the ECB was unlikely to reach its 2% target growth… this decade. That’s all but admitting defeat. And it puts the focus – for markets anyway – on what a massive expansion in deficit spending (fiscal policy) means for stocks.