\\SocGen has put out a big special report titled: QE3 delayed, but still likely.
Their high level overview of where things stand right now looks like this:
QE3 has been delayed by the recent bout of good news from the US economy: SG is now in line with the consensus, expecting the launch in Q2 (24-25 April FOMC meeting).
As the $400bn Operation Twist program is still boosting demand for long-dated US Treasuries, we believe the Fed will be concentrating its expected $600bn QE3 on buyingmortgage products to provide support to the underlying property market.
While policy loosening can but be good for all financial assets, the market impact should be less strong than during QE1 or QE2, as the surprise effect has disappeared.
QE1 and QE2 were launched at a time when the US Economic Surprise Indicator (ESI) was
very low. This time, the ESI has moved back up to an all-time high, indicating that the consensus on the economy may have become too optimistic and thus possibly putting risk assets in danger in the near future.
As the $400bn Operation Twist program is still boosting demand for long-dated US Treasuries, we believe the Fed will be concentrating its expected $600bn QE3 on buying
While policy loosening can but be good for all financial assets, the market impact should be less strong than during QE1 or QE2, as the surprise effect has disappeared.
QE1 and QE2 were launched at a time when the US Economic Surprise Indicator (ESI) was
very low. This time, the ESI has moved back up to an all-time high, indicating that the consensus on the economy may have become too optimistic and thus possibly putting risk assets in danger in the near future.
This point about the Economic Surprise Index being elevated at the moment is key to their forecast that there's a good chance the stock market is going to tank between now and that late April meeting when they expect more QE.
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