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QE refreshes the parts of the body other policies cannot reach

Published Friday, January 23rd, 2015

Or so the ECB hope. Apologies to Heineken for abusing their well known strapline but the market clearly believes in the miraculous qualities of QE – equities up, bonds up, euro down, European importers horrified, exporters delighted. Suddenly, overnight, companies are worth more despite not earning a penny extra in revenue or profit. QE is fairy dust for CEOs.

The ECB beat expectations at €60 billion a month but, like beer, QE does not necessarily flow to the right places and if it flows to the wrong places the fallout can be distinctly unpleasant. Asset bubbles are the big danger and if growth and wage inflation fail to materialise the rich get richer and the poor left behind, a problem the eurozone already has in spades. After the ECB comes the Greek election on Sunday. These are fascinating times and you cannot help but look in awe at the confidence investors have in stock markets.

A far as oil prices are concerned to the extent that QE delivers economic growth it’s another bullish straw in the wind to add to those discussed below. Of more importance yesterday were the EIA stock figures which were bearish for crude. Crude oil stocks grew by 10 million bbls, the largest build since 2001 as refiners cut back runs by 5.5% to 85.5%. PADD2 built by 7.3 million bbls and within that Cushing stocks by 2.9 million bbls.

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Posted by David Hufton