Focus was away from the Fed this week as markets digested Draghi comments suggesting more QE is coming and fresh easing from China. Draghi commented that the degree of policy accommodation would be re-examined in December, noting downside risks to growth and inflation. This is a signal that the ECB may increase its QE programs, something that we have felt was increasingly likely and was a key reason for holding our long in European equities via HEDJ. In the following session China cut their one year lending rate by 0.25%, this saw stocks enjoy a solid rally to end the week with the fears over China that we so forefront a couple of months ago now all but dissipated.
We did see a disconnect between volatility and the S&P 500. On Friday volatility was up (0.7%) while the S&P 500 was also up (1.10%). This could spell trouble for the week ahead.