Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As I wrote last week we are seeing some very different behavior out of Japan as new PM Abe is a Krugman+Bernanke in one at this time (aggressive on both fiscal + monetary measures). Not only did the BOJ announce another round of QE but more importantly has changed its inflation target to 2%.
- In addition to a sharp boost in asset purchases, the BOJ accepted a demand from Prime Minister Shinzo Abe for a 2% inflation target. Inflation at that level would be a fundamental shift for an economy accustomed to a small but steady fall in prices for most of the past two decades. The new target replaces a less-specific 1% price “goal” to which the bank had previously agreed, a commitment that critics said was too small and too vague.
For a country grappling with deflation for years on end, this is a sea change. Further the BOJ now has joined the U.S. in open ended QE as the global race to the currency bottom not only continues but accelerates!
- Concluding a two-day policy board meeting, the central bank said that it will make its current ¥101 trillion ($1.13 trillion) asset purchase program open-ended from next year, expecting to add another ¥10 trillion ($111 billion) in 2014. That is a shift from current policy, which had generally imposed an end date on all new rounds of easing
U.S. futures initially spiked a bit in the overnight session even though this was somewhat anticipated, as the global central bank shooting of heroin into the veins continues, but most of those gains went away within a few hours. The yen has already been in free fall for a month – and by inverse correlation the Nikkei has been surging as all other things being equal, anything priced in yen would be apt to do. So we’ll see if these actions make for long term changes in Japan versus all the other attempts the past few decades.
Back in the U.S. economic data is not that important this week as all eyes will go to corporate earnings including some of the most popular names among the retail crowd i.e. Apple (AAPL) and Google (GOOG). Both have been relatively weak in the big picture, especially the latter so it should be very interesting to see how the market treats them. Outside of those I believe something like 82 of the S&P 500 corporations report this week, so will be hot and heavy action.
At 10 today we have existing home sales – 5.1M annual run rate expected; new home sales Friday – 388K annual run rate expected. But again all eyes should be on earnings.
Technically, the S&P 500 continues along its channel – it is having a hard time making a multi day run since the move at the beginning of the year was so extreme and hence the market has been in a state of overbought for almost all of 2013.
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