Last night the Bank of Japan stunned equity markets by dramatically increasing QE, purchasing JGB bonds) from 70 trillion yen to 80 trillion yen. In the process they also increased purchase of Japanese linked equity ETFs by 3 trillion yen.
The purpose is to stem ongoing deflation concerns by this action which would also have the effect of sharply lowering the yen vs the dollar.
Markets in Japan were limit up and the yen fell dramatically after this money printing event. Prime Minister Abe is determined to increase inflation and when previous efforts didn’t work well enough, he decided to go all-in.
Rumors had it that the prime creator of QE, the U.S. Fed, privately cautioned the ECB not to engage in any more QE, which they did anyway, thus enhancing a burgeoning currency war as the euro also fell.
Trying to manage the falling ruble, Russia raised interest rates but that didn’t help very much.
Nevertheless, the effect on global equity markets was a dramatic increase to new highs. Casualties were commodities with gold, silver and crude oil dropping sharply to new trend lows. Bonds fell as stocks rose.
Economic data in the U.S. was good or bad depending how you read the data. Personal Income rose slightly (0.2% vs 0.3% expected & prior 0.3%) while Spending fell (-0.2% vs 0.1% expected & prior 0.5%). Not a good report. The Chicago PMI exploded higher (66 vs 60.5 expected & prior 60.5) but in the data higher inventory costs and soft employment conditions disappointed which were ignored by headline writers. Consumer Sentiment rose (86.9 vs 86.4 expected & prior 86.4) which was a 7 year high but most of this is due to lower gas prices in my opinion.
So stocks closed the harrowing month of October bright green and at fresh highs cheered by global bank stimulus primarily though currency wars which won’t end well.
SocGen’s Albert Edwards noted:
“The amazing thing is how little interest there is with western investors about Japan and how it effects US or European portfolios
Notwithstanding the fact that it is the 3rd biggest economy in the world by a long way (the same size as Germany and France added together if you look at it the right way ie current exchange rates rather than PPP)
Little understanding out there what yen devaluation means for Chinese renmimbi and how they will be forced to devalue too
ECB money printing will never be able to compete with Japan. The euro might be going down vs the dollar but it will be going up against the yen
Little understanding how, not only will the eurozone be going into recession and deflation but that Germany will be the weakest economy in zone. Once Germany’s budget deficit starts to rise sharply as a result of their recession the new mad balanced budget act will kick in and they will be cutting spending aggressively. Expect the eurozone to disappear down a black hole!”
Strong stuff, right? Well, the algos don’t care.
Leading market sectors higher included: S&P 500 (SPY), Tech (QQQ), Dow (DIA), Small Caps (IWM), Financials (XLF), Banks (KBE), Regional Banks (KRE), Materials (XLB), Steel (SLX), Energy (XLE), REITs (IYR), Transports (IYT), Industrials (XLI), Consumer Discretionary (XLY), Retail (XRT), Semiconductors (SMH), Emerging Markets (EEM), Japan (EWJ), China (FXI), Brazil (EWZ), EAFE (EFA), Italy (EWI), Germany (EWG), UK (EWU), Taiwan (EWT), India (EPI), Hong Kong (EWH), European Monetary Union (EZU), Timber (CUT), Solar (TAN), Agricultural Producers (MOO), dollar (UUP) and many more.
Leading market sectors lower included: Gold (GLD), Gold Miners (GDX), Junior Gold Miners (GDXJ), Silver Miners (SIL), South Korea (EWY), Russia (RSX), Euro (FXE), Yen (FXE), Brazil Real (BZF), Canadian Loonie (FXC), Crude Oil (USO), Copper (JJC), Silver (SLV), Sugar (SGG), Emerging Europe (GUR) and Bonds (TLT).
The top 20 market movers by percentage change in volume whether rising or falling is available daily.
Volume was slightly heavier Friday and breadth per the WSJ was positive. Markets are overbought short-term at least.
No question about it, the central banks have taken over markets. You either join with them and their scheme or do something else with your money. Eventually what they’re doing is a trend that will run its course and eventually will come a cropper.
Let’s see what happens.
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Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001.
He is the author of "Create Your own ETF Hedge Fund: A Do-It-Yourself Strategy for Private Wealth Management" published by Wiley Finance and "The Best ETFs: U.S. Equities, A Companion Guide to Building Your ETF Portfolio"
Disclaimer: The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell only any security. Market sectors and related ETF's are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotation's aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com
|WTI Crude Futr||80.72||-0.40||-0.49 %||17:14|
|US Dollar||87.04||0.79||0.92 %||16:59|
|Brazil||2125.396||3.75 %||-2.07 %||-4.18 %|
|Russia||603.934||3.59 %||-1.18 %||-23.25 %|
|India||508.437||0.85 %||1.56 %||24.83 %|
|China||63.426||-0.51 %||2.85 %||0.51 %|