At their monthly meeting the ECB left interest rates where they were, pretty much as generally anticipated. However, some analysts had been speculating an announcement the bond buying program, due to end in March next year, would be extended beyond that date. Other possibilities were that the range of assets that the program could buy, possibly including equities as the supply of available bonds is diminishing, would be announced. In the end the meeting was a bit of a non-event, and equity markets remained largely unchanged. Another day goes by without the S&P 500 moving outside the 1% range.
As fast as central banks in Europe, including the UK are buying corporate bonds, large corporations are issuing them. Corporate treasurers look to take advantage of these exceedingly low interest rates. The Financial Times reports that this week up to 50bn euros of corporate debt could be issued. To illustrate how distorted bond markets are, Sanofi, the French pharmaceutical company and Henkel the German chemical company, raised 3 1/2 and 2 year funds respectively at negative interest rates. Sanofi has a current dividend yield of 4%. Possibly another indication of how negative sentiment is towards the equity markets.
Peter Oppenheimer, Goldman Sach’s chief strategist, on CNBC this week added his voice to what appears to be an ever increasing list of bears on the equity market. If one studies the positioning on the trading platforms, traders appear to be short of all the major indexes. If equity markets are supposed to move in the direction that causes the most pain, and central bankers remain determined to continue to purchase assets in the debt market, that pain may be up. Fund managers may start to worry at we get closer to the year-end that they might need to use their client funds or risk losing those funds and may start to chase equity markets once again.
As we get closer to the Federal Reserve’s decision on the 21st of September, one wonders how much the members will be influenced by the possible outcomes from the upcoming election. From this side of the pond it feels that the US public are faced with Hobson’s choice, as neither candidate looks particularly appealing. For what it is worth the IG markets trading platform a week ago offered odds of approximately 5/1 against Donald Trump, today those odds have closed to 3/1.