Liveblog: Markets, the Fed and QE2
This is it. The moment markets have been anticipating since Fed Chairman Ben Bernanke first raised the prospects of a second round of quantitative easing (QE2) in his August speech at a Fed confab in Jackson Hole, Wyoming. The Journal’s Matt Phillips, Mark Gongloff and Dave Kansas will be live-blogging the festivities with dispatches from market scribblers and updates of how the financial markets move once the statement is pushed out at 2:15 p.m. ET.
- 1:16 pm
- by Mark Gongloff
10-year selling off a smidgen already! Yield up to 2.57%- 1:15 pm
- by Dave Kansas
Matt, excellent point on what's priced in. Probably a good amount. "Sell on the News" will get a heavy test this afternoon.
How ironic that Bernanke floats the idea at a Kansas City Fed event. Bet Hoenig loved that.- 1:13 pm
- by Matt Phillips
Of course, the question no one can answer is how much of QE2 is already "priced in."
Markets have moved a lot since Since Ben Bernanke’s Aug 6 speech at at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo., persuaded the market that quantitative easing was on its way.
The U.S. dollar index is down 5% since then. The S&P 500 is up 6%. The yield on the 10-year fell from around 2.83% to below 2.40%, although now it's back tracked a bit.- 1:12 pm
- by Mark Gongloff
And now, for comparison purposes post-announcement, the bond-market dashboard pre-Fed:
10-year note: 2.53%
10-year inflation rate priced into 10-year TIPS notes: 2.12%
In the fed funds futures market, there's no expectation whatsoever of a rate increase during all of 2011.
Way out in the distance, July 2012 fed-funds contract prices in a 62% chance of a minimal rate hike at the late-June 2012 Fed meeting.- 1:10 pm
- by Dave Kansas
Here are a few things to look for when the FOMC news comes out:
- Dollar. If package is considered "generous/aggressive" the greenback will most likely retreat. If the Fed goes all nuance, the dollar may buck up and surprise the huge number of dollar bears out there.
- Gold. It will move inversely to the dollar. It would confirm (or not) market view of just how aggressive Fed is being. Gold prices are weaker ahead of the announcement.
- Treasurys. Look for a rally on the long end, especially among 30-years. This has already happened to a great extent, so a little pullback could take place if the Fed lands in the middle of expecations.
- Stocks. Kind of up in the air. Cyclicals should do well if it's an aggressive package. But they've already done well since late August, so a good chunk of that's in the bank.
- 1:08 pm
- by Mark Gongloff
Yes, indeed, this is the Super Bowl, Christmas morning and a nervous first date all rolled into one for market wonks, however disturbing that might be.
In the meantime, here's basically what the bond market expects:
Six months of QE, totaling $500 billion, probably with some sort of promise to do more if conditions warrant.
Seeing as that expectation is pretty much baked in, getting something like it wouldn't seem to have much impact on Treasury yields -- which are already having a big day pre-Fed, pushing the 10-year note's yield down to 2.54%.
If the Fed disappoints, get ready for a bond selloff, with yields higher "across the curve," warned David Woo, Bank of America Merrill Lynch's head of global rates and currencies research, in a note today.
If the Fed satisfies, 10-year Treasury yields could eventually grind all the way down to 2.35%, according to a survey of bond-market participants yesterday by David Ader at CRT Capital. Not all at once, of course.
Before we get started, here's basically what the bond market expects:Six months of QE, totaling $500 billion, probably with some sort of promise to do more if conditions warrant.Seeing as that expectation is pretty much baked in, getting something like it wouldn't seem to have much impact on Treasury yields -- which are already having a big day pre-Fed, pushing the 10-year note's yield down to 2.54%.If the Fed disappoints, get ready for a bond selloff, with yields higher "across the curve," warned David Woo, Bank of America Merrill Lynch's head of global rates and currencies research, in a note today.If the Fed satisfies, 10-year Treasury yields could eventually grind all the way down to 2.35%, according to a survey of bond-market participants yesterday by David Ader at CRT Capital. Likely not all at once, though.- 1:04 pm
- by Matt Phillips
Greetings, Mark and Dave. In terms of markets wonkery, this is about exciting as it gets.
Mark, you're the chief credit market goon around here. Can you bring us up to speed on what the bond market expects from the Fed.
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