Stefano Sciacca

Fri, Jan 24

QE or Not QE? That Is The Dilemma…

As we had previously already discussed, the Federal Reserve initiated a $60bn monthly repurchase program of T-Bills and now as never before the infamous “Non QE” is about to officially become “QE4”, where for Quantitative Easing (QE) investors mean an expansionary monetary policy intended to boost a country’s economy through interest rate cuts and regular corporate/government bonds purchase programs.


Last week we had the top 4 US investment banks all reporting better-than-expected results, especially thanks to a boost in their Fixed Income trading desk. The excess of liquidity is dragging the performance of American banks higher and a further stimulus (interest rate cut?)) might also contribute positively. In the meantime. the market seems to well correlate with the Fed’s balance sheet expansion (see “Chart of the week” below) and welcome the decisions taken by central bankers. Market participants currently focus on “buying the ugly and sell the good” news, as centralised intervention continues to lead the markets. 


The reason being a lack of supply in T-Bills as the Fed continues its harsh and distorting repurchase plan. Hence, the Central Bank will likely kick off buying some short coupon securities in addition to T-Bills. In this way, duration and “risk” will be taken out of the market. If that did not happen the Canadian Bank BMO foresees a $321bn bill supply shortage by Q2 2020.



Now what might be interesting is to understand what pushed the Fed off from already purchasing short coupons bonds. The answer is simple and lies on Fed Chairman Powell’s announcement of “Non QE” launch and statement that “In no sense is this QE”, although the program implies a regular liquidity injection of up to $100bn per month.


Monetary policies have become more of a problem than a solution. Raising rates and normalizing the Fed’s balance sheet would now be disruptive for an economy that low-interest rate/liquidity addicted. The crucial point is that corporate profits have gone nowhere while the stock market has been flying and continues to seem unstoppable, leading to historically high Price-to-earnings ratio.

Next week our macro spotlight will be on?




  • Ifo Business Climate – Germany 
  • Home Sales - US 




  • Durable Goods Orders – US 
  • Richmond Fed Manufacturing Index - US 




  • Consumer Confidence – Japan 
  • GfK Consumer Confidence – Germany 
  • Loans to Company – ECB 
  • Fed Interest Rate Decision - US 




  • Unemployment Change – Germany 
  • Business Confidence – ECB 
  • Bank of England Interest Rate Decision – UK 
  • GDP - US 



  • Consumer Confidence – UK 
  • GDP – France 
  • NBS Manufacturing Index – China 
  • GDP – Eurozone 
  • Personal Spending -US 


Chart of the week

Fact of the week


Netflix slipped 2% after reporting a disappointing miss on US annual subscribers (550K vs 611K/589K for Consensus/Guidance).


Quote of the week


""Comparing Netflix to introductory pricing and/or inferior over-the-top products as a justification for worrying about the competitive climate is missing the fact that the cable, telecom, and satellite video industry (where all the money is) is shrinking with no end in sight"


Scott Devitt, Tech Senior Analyst, Morgan Stanley