Jun 20, 2012 05:04 PM IST | Source: Moneycontrol.com

How markets have reacted to QE2: Mecklai

The graph has been divided into two phases - Pre QE2 and Post QE2. It can be seen that during Pre QE2 phase, the MSCI Equity Index and Thomson Reuters/Jefferies CRB Index both being broad gauge of global equity index and commodity prices respectively, had been falling and Dollar index was rising.

How markets have reacted to QE2: Mecklai

Mecklai graph of the day: Awaiting QE3

The below graph has been divided into two phases - Pre QE2 and Post QE2. It can be seen that during Pre QE2 phase, the MSCI Equity Index and Thomson Reuters/Jefferies CRB Index both being broad gauge of global equity index and commodity prices respectively, had been falling and Dollar index was rising. This was mainly because of the rising risk aversion, which kept the demand for safer assets like US dollar at elevated levels. Post QE2 period, the reverse was true where investors fled to riskier assets as market was pumped in with additional liquidity and dumped the safe haven assets.

With the host of disappointing economic data releases from US, the expectation of Fed announcing the third round of QE has been rising.

Extending the above interpretation, announcement of QE3 the implementation of QE3 is likely to boost investors’ confidence and thus a rally in the prices of riskier assets might be witnessed. Similarly, dollar index is also likely to fall with global currencies strengthening against dollar.

The below graph shows the movement of CRB index, MSCI World Equity index and DXY.

 

 

 

 

 

 

 

 

 

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