QE/QT and equity markets

reviewing the market impact of quantitative operations

how much is QE/QT affecting EU stocks?

In the past 6 months:

• the size of ECB balance sheet has been falling and the Stoxx 600 equity index has been rising ; their correlation for the period is negative and equal to -0.67 ( robust)
• this suggest that even if correlation is fair, higher stocks and a smaller central bank's balance sheet are moving independently, without any causal relationship

Zooming further out, these are the longer-term correlations between bond yields and ECN balance sheet:

• 1-year: -0.84 (robust)
• 3-year: -0.93 (robust)
• Max period observed in the chart: 0.73 (robust)

IntroAs anticipated in the previous page, QE/QT are part of the policy tools for the ECB and they influence both markets and the economy. Here we try to assess how extensively Quantitative operations by the ECB have affected European stock markets recently.

Chart guideWe can see in the chart above both the accumulated stock of assets in the ECB balance sheet (shaded area) and European equities, for a graphical examination of their long-term and short-term relationship. The key point here is to find out if quantitative easing or tightening are effectively driving stock prices at the moment, to then make the right investment decisions related to our bond allocation in the portfolio.

QE/QT and bond markets

reviewing the market impact of quantitative operations

how much is QE/QT affecting EU bonds?

In the past 6 months:

• the size of ECB balance sheet has been falling and 10yr yields have been rising
• their correlation for the period is negative and equal to -0.74 ( robust)
• this suggest that 10yr bond yields have been pushed higher by QT and the squeezing central bank's balance sheet

Zooming further out, these are the longer-term correlations between bond yields and ECN balance sheet:

• 1-year: -0.80 (robust)
• 3-year: -0.53 (fair)
• Max period observed in the chart: -0.10 (weak)

IntroAs anticipated in the previous page, QE/QT are part of the policy tools for the ECB and they influence both markets and the economy. Here we try to assess how extensively Quantitative operations by the ECB have affected bond markets recently.

Chart guideWe can see in the chart above both the accumulated stock of assets in the ECB balance sheet (shaded area) and the 10-year German bond yield - as a proxy for European bond yields - for a graphical examination of their long-term and short-term relationship. The key point here is to find out if quantitative easing or tightening are effectively driving bond yields, to then make the right investment decisions related to our bond allocation in the portfolio.