Saxo Bank Releases Q2 Outlook for 2011: To QE or Not to QE?

HELLERUP, Denmark, April 14, 2011 /PRNewswire/ -- Saxo Bank, the online trading and investment specialist, today released its second quarter Outlook, a short analysis examining the global economic outlook for the forthcoming quarter.

Economic growth has been strong across the board for the most part this year, but that is not an all-clear for loading up in risky assets. Saxo Bank foresees increased volatility in the second quarter as uprisings in the Middle East, a wounded Japanese economy, and the expectation of the end of quantitative easing in the US are to bring more "two-way" action.

The report assesses that whether as a result of a strong economy or a side effect of loose central bank monetary policy, commodities remained elevated throughout the first quarter - particularly in the form of the Fed's QE2 and its implications for the US dollar. With the inflation cat clearly out of the bag, Saxo Bank stresses that policy-makers have been busy ratcheting higher the expectations for a normalisation of policy rates.

Saxo Bank's analysts believe the question that begs to be answered is to what degree markets have been propped up by the Fed's QE2 programme, and how markets will deal with the prospect of its cessation at the end of the quarter.

Steen Jakobsen, Chief Economist at Saxo Bank, comments: "We are momentum bullish for stocks seeing potential for 1385/1400 in the S&P, but are sceptical as our bottom analysis now shows strains on input costs and the ability to keep wages low.

"We were caught slightly off guard by the European Central Bank's hawkish rhetoric, which seems more political than anything else, given the current low core inflation rate in the Euro area. However, for the world's largest economies, we maintain that any hikes are a step towards the normalisation of a loose monetary policy rather than a new tightening rate cycle. Instead, we ask ourselves whether all roads lead to QE3. It seems as if the Fed is only waiting for renewed economic weakness to have sufficient arguments in favour of further monetary easing. And if we are right about the gradual move to QE3, then we expect gold, silver, and metals overall to continue to shine."

The Quarterly Outlook Q2 2011 reflects on the following areas and the full report is available from Saxo Bank: http://www.saxobank.com/en/about-us/press/pages/press-and-media.aspx

- Economics

- Policy rates in 2011

- Critical challenges for the major currencies

- FX options

- Equities

- Commodities