- Morgan Stanley: Central Banks Are Injecting $100 Billion Per Month To Crush Vol And Spike Markets
by Tyler Durden, https://www.zerohedge.com/
One week ago, in response to the recurring question whether the Fed’s latest direct intervention in capital markets is QE or is NOT QE, we answered by looking directly at how the market itself was responding to the Fed’s liquidity injections.
The answer was clear enough: just like during the POMO days of QE1, QE2, Operation Twist, and QE3, stocks have risen in every single week when the Fed’s balance sheet increased, following the three weeks of declines that led to the October 11 announcement. What about the one week when the Fed’s balance sheet shrank? That was the only week in the past two months since the launch of “NOT QE” when the S&P dropped.
As Morgan Stanley’s Michal Wilson writes today in his Weekly Warm Up piece, “in recent marketing meetings, several clients have asked if we think theFed’s $60B/month balance sheet expansion is QE or not.” In response, Wilson gives the podium to MS interest rates strategist Matt Hornbach who says that it’s “Q” but not “QE.” In other words, “there is little debate that the Fed is increasing the quantity of money, or Q. However, they are not taking duration out of the market so the additional money lacks a direct transmission mechanism to the equity markets or other long duration risk assets.”
While semantically Wilson and Hornbach are correct, the outcome is obvious: whether it is Q, QE, or NOT QE, the money is clearly making its way to the market when the Fed’s balance sheet expands, and vice versa.
And quite a bit of money it is, because it’s not just the Fed.
As Wilson further elaborates, “we continue to see the 3 largest central banks in the world expand their balance sheets at the rate of $100B per month ($60B from the Fed, $25B from the ECB and $15B from the BOJ).” As a reminder, several years ago, Citi’s fixed income guru Matt King said that it takes $200 billion in quarterly liquidity injections across all central banks to prevent a market crash, and lo and behold we are now well above that bogey.