Expect QE3 soon; Brent to hover around $95-105: IG Markets

Although, Bernanke has made it clear that there would be no immediate quantitative easing, Jason Hughes of IG Markets feels the coming months are likely to see some form of QE3 from the Fed. Moreover, crude has been gaining over the past seven weeks or so on hopes of a QE3, he added.

However, Hughes is not so optimistic about the European markets and believes they are still far from any concrete solution.
Hughes expects Brent crude to hover around the USD 95-105 range and anticipates strengthening of the dollar owing to the US Presidential elections scheduled later this year. Below is the edited transcript of the interview on CNBC-TV18. Q: How have you read the market reaction to Ben Bernanke's comments of no immediate QE3 but all the markets have rallied?
A: I think we are still seeing continued belief that something is in the pipeline. If not now, in the next couple of months. It possibly gives us a guide towards the end of August, for a September next move from Fed. We also have the potential for extra stimulus out of China, both which is fuelling support in the market and the belief that some sort of QE will be on its way in the not too distant future. Q: Are there any events that you will watch out for in Europe itself, anything that can lead to brinkmanship?
A: We still have a long way to get to a meaningful European solution. It seems to have taken a back seat at the moment. But there is lot of rambling going on, certainly with Spanish bailout and there are issues over terms being met by Greece for what was already agreed with them 12 months back. We are far from real concrete solutions in Europe.
They still haven't put in place the sort of structure and framework to try and prevent this from happening again, whether there is more fiscal union and some sort of potential for euro bonds or a more joined up network, whatever that actually turns out to be. There is still much potential for a lot of twist in the European turf for sure. Q: What is your expectation of how Brent crude prices will move? They have already rallied quite a bit over the past few weeks- is it in anticipation that we will get more stimulus or have the demand-supply dynamics changed which will keep the prices elevated?
A: I think it is definitely in line with the QE prospect. You are seeing Nymex and Brent put on about 7 weeks of gains over the last little while. It looks like we are potentially reaching the top of that and there has been issues with Brent on Iranian pressures seem to affect that more than the Nymex as you would expect.
On the whole, USD 105 on Brent is a potential level where we might see some sort of technical reversal and prices start to ease back again. The same will be true with Nymex where we are heading upto USD 90 price, where you could see some sort of reversal from that level. It will ease back down and maybe keep within that range we are seeing now between USD 80-90 on Nymex and about USD 95 to USD 105 on Brent. Q: Do you expect that most of the risk assets will continue to linger at current levels or do you expect a downturn considering that this long expected stimulus from Bernanke is not going to be immediate?
A: I think we are seeing that people are happy to wait for what they expect to be coming from the Fed. They wait and see what the Fed has taken. It is potentially because they have a few tools left at their disposal. They are worried about using or limiting their options further at this early stage.
We also have the US presidential election at the end of the year. Since this is a year where we see a bit of a US rally going into those times, we might see further dollar strength which might impact risk currencies and also commodities such as oil and gold.