While most of new rounds of US QEs (2008, 2010, 2012), and Japan QE (2013) managed to depress volatility and boost asset pricing, late-cycle European QE failed to domesticate markets for long. By Q2, markets were already toppish, and volatility able to erupt, in the face of Central Banks activism. In 2015, financial markets started rioting against monetary activism and market manipulation by global Central Banks.
Earlier we showed that despite its 16th cut to world GDP growth forecasts (out of the past 21), the IMF still believes that the hockeystick rebound to global growth is just around the corner:
However, one place where not even the IMF can in good conscience predict a hockeystick-like rebound in growth, is China, where the IMF now expects GDP to grow only 6.3% in 2016, dropping to an even lower 6.0% in 2017.
This is what the IMF warned about the risks to its overall outlook, which not surprisingly are focused on China:
Just one month ago, BofA's excited head equity strategist Savita Subramanian told Barron's that storm clouds would disperse and that the S&P would close out 2016 at 2,200, incidentally the same level as her year ago forecast for where 2015 would close. Fast forward to today and things are far less euphoric.
This is what Savita writes in a note released overnight:
Last week a Central Banker made the most incredible admission in the history of banking.
It came from the Bank of Japan.
The Bank of Japan has been the leader in global Keynesian insanity. The US Federal Reserve launched its first QE program in 2008. The European Central Bank launched its first QE program in 2015.
The Bank of Japan first launched QE back in 2001.
Two months ago, before the Fed's rate hike was largely perceived as a market-spooking policy mistake, we laid out Deutsche Bank's three stage scenario on how to trade "The Fed's Upcoming "Policy Error", one which could be summarized as follows: the 10Y starts off strong, weakens into the summer to 2.50% on tantrum fears, then proceeds to surge higher as the Fed acknowledges its error, and hits a yield of 2.00% at the end of the year.