AUDIO: QE3, China and trendless markets

Nick Beecroft, senior markets consultant at Saxo Bank in London, says the risks of crisis 2.0 have just gone up.

Nick Beecroft, senior markets consultant at Saxo Bank in London, looks at the risks facing currency markets, including a third round of US quantitative easing, China's fight against inflation, and the constant hunt for ‘black swan' events.

Beecroft said there remain question marks over the sustainability of the US recovery, which could bring QE3 back onto the agenda. Primary indicators include a failure to decrease unemployment, the Dow Jones correcting below 1,150, and further global instability emanating from the European sovereign debt crisis.

That said, QE3 is likely to look more like the ‘Operation Twist' used by the Fed in the 1960s to avoid political discord. The aim then was to keep medium- to long-term Treasury yields down to spur on the mortgage market. "But this time it will be used principally for political consideration," he says.

That could all change if China fails in its mission to juggle rising labour costs and its global export business, overstimulating the economy to create a bubble. Beecroft believes there is a 75% chance the country will be successful, to the ongoing detriment of the US dollar versus other majors. "If they fail, the world economy will weaken and there will be a desperate search for safe havens to the benefit of the US dollar."

Elsewhere, he explains the lack of trends as indicative of the markets being scarred by the memories of 2008 and 2009 and hunting for black swan events. Instead, he says the best indicator of direction is what he refers to as counterintuitive price failures.

Click here to hear more on this issue, and Beecroft's thoughts on the European sovereign debt crisis, energy prices and the increased risk of Crisis 2.0, in this sponsored audiocast.