The Financial Times had a loud headline this morning on their main page proclaiming the end of monetary easing. They said:
“An end to global monetary policy easing is on the horizon, with the US Federal Reserve set to signal it will cease asset purchases at the end of June.
When the rate-setting Federal Open Market Committee meets on April 27, it is unlikely to limit its options by ruling out asset purchases beyond the second $600bn “quantitative easing” programme – or “QE2” – that is due to finish by the end of the second quarter.”
While the credit ratings agencies are stealing the headlines this is the more important story today. If the QE2 trade is ending today’s market action is fairly consistent with what I would expect to see. Equities are falling, bonds are rallying and the USD is rallying. This is not even remotely consistent with concerns over a sovereign debt problem in the USA. What this is consistent with, is the end of the QE2 trade. As I stated last week, the US dollar will be the primary tell for the end of the QE2 trade. Today’s rally in the dollar is sending a loud message. Clearly, it’s unwise to extrapolate from one day’s market action, but as we inch closer to June the market is likely to become more volatile and these signals are going to become more pronounced.