Just what is priced in? That is the question. Based on the aggregate size of the Fed and ECB balance sheets, it appears the S&P 500 is pricing in an increase of around USD300bn in the short-term. This USD 300bn amounts to EUR 240bn - a very special and rather too coincidental number. Based on expectations of supply, the EMU16 nations have EUR 245bn issuance remaining for the rest of 2012. So, it would appear that the market, in its ever-hopeful ebullient way has priced in the expectation that the ECB will soak up the entire remaining debt issuance of the 16 (remaining) Euro nations for the rest of the year. Anything less will be a disappointment - and remember each nation will have to ask for 'help' before receiving this 'support'. Coincidence, maybe? Over-confidence, perhaps? Reality, not a chance.
Comparing the S&P 500's 'expectations' to the aggregate USD value of the Fed and ECB balance sheets over time shows that LTRO2's impact was well-priced in - as was LTRO1 (though less so). Given current levels, SMP 2.0 implies growth of around USD 300bn (or EUR 240bn)...
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which just happens to be...
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So the equity market - in all its fundamental-ignoring reality - has priced in a conditional put as implicitly triggered for all European nations...
Perhaps even more remarkably - it would appear Gold has been correctly anticipating Fed/ECB actions since the crash lows in 2009. Somewhat explains the 'stagnation' in Gold and the recent breakout once again...(also providing some insight into Gold's downside risk)
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Charts: Bloomberg and Morgan Stanley