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.
2016 may see a continuation and exacerbation of such struggle between market forces reacting to the risk factors detailed above and Central Banks’ actions/reactions.
As Fasanara Capital estimates that the arsenal of Central Banks is ~70% exhausted, we expect the remaining ~30% ammo left to be forceful and able to domesticate markets for a while longer.
The market has shown its capacity to be random and violent, able to drive itself into pain trades, crushing consensus and crowded positioning as it moves away from fundamentals (macro releases) and technicals (Central Banks’ targets for asset pricing and wealth effect), irregularly, in size and for lengthy periods of time.
Source: Fasanara Capital