Stocks reversed yesterday’s disquiet and rallied overnight after the Bank of Japan (BoJ) set up a nice rally in Asian trade by joining the free money party with the Fed.
The BOJ’s action in increasing its bond buying program by another ¥10 trillion to ¥80 trillion on the back of its assessment of a further weakening in the economic outlook for the Japanese and global economies and that any recovery is at least 6 months away. The BOJ also took away the floor on which it could buy bonds thus easing rates a little further, such as you can when they are effectively zero anyway, and extended the program of buying by another 6 months to the end of 2013.
The Japanese economy has had no self sustaining momentum for years now and remains utterly dependent on the global economy and the innovativeness, or not, of it’s corporate sector and the competitiveness of its corporations which is dependant on the strength of the Yen. So the easing is more symbolic than effective for the local economy – but was clearly aimed at trying to weaken the Yen. But the Fed has always trumped the BoJ and on that front is clearly trying to weaken the US dollar. So the early rally in USD/JPY (USD/JPY rally = Yen weakness) was reversed overnight and the USD/JPY is at 78.35 down 0.53% on the day. The currency wars are certainly back and the ECB is unlikely to be enjoying the euro’s rally much more than the BoJ is enjoying the Yen’s near multi year highs. But that is the price the ECB has paid for stabilising the Eurozone malaise for now.
But it wasn’t just the Japanese actions that got the US markets excited. The housing recovery is clearly continuing and coming just a day after we reported that Home Builder confidence was at multi-year highs we can now see why. Data overnight showed that housing starts rose 2.3% on the month while at the same time existing home sales increased 7.8% last month which is the fastest pace since May 2010. Elsewhere the prices of homes were reported to have risen 9.5% from a year ago. Whether sustainable or not the housing market has been recovering and that is a positive sign for the US economy.
So at the close of play the S&P 500 was up 0.31% to 1,463, the Dow was up 0.10% and the NASDAQ rose 0.15%. In specific stock news 3M followed Fed Ex’s report yesterday on weak trading conditions by saying that its expected revenue growth of 7-8% would now be a “stretch” target.
In Europe it seems it was the Japanese move that got things going but equally the US data was a positive as well. Concerns seem to be growing again about what Spain is up to insofar as it is dragging its feet on a bailout but at the close of play the FTSE was up 0.35%, the DAX up 0.59% and the CAC rose 0.54% and Madrid rose 0.44%.
On commodity markets crude’s slide continued and the CRB was off about 1% to 308.41. Before I get into the break down I want to highlight why headlines can sometimes be either misleading or appalling. Here is one I saw overnight:
Copper hits new 4-1/2 month top, demand worries resurface
Does that really make sense? The two bits of that headline seem somewhat incompatible. The reason that I raise it is because you need to be very careful with the filter you use when reading reports of what is happening in the economy or markets. That’s as true here sometimes as anywhere else – I have a view point I push and sometimes a headline to get attention. Ok often – but that’s just a dumb headline- at least we know what they are going to say if copper falls tomorrow.
AUD/USD: JimmyR says the positive trend continues on the dailies and the AUD rallied of yesterday’s lows overnight . If the AUD can take out last night’s high at 1.0495 it should run toward the two overhead resistance levels on the 4 hour charts of 1.0513/15 and 1.0540. Above here 1.0570/75. Support is 1.0414, 1.0425/35 and 1.0459.
DATA: HSBC Flash PMI today is the key for trade in Asia before many PMI’s are released in Europe tonight.
And here is how the markets closed at 6.25 this morning courtesy of AVATrade
Disclaimer: The content on this blog should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility and you should consult your investment or financial adviser before making any investment decisions.