Bank of Japan reaction, Canada inflation and WTI retest in focus
The retreat in global stock markets continued through overnight trading, particularly impacting trading in European indices this morning but the neutral to positive reaction to what could have been seen as poor news in Asia Pacific markets suggests this decline could be short-lived.
China’s beige book report came out overnight indicating its economy continues to struggle, particularly the manufacturing and service sectors, while the retailing and real estate sectors did better. One would have thought this news would drive China sensitive markets way down again, instead, stocks in Hong Kong and Shanghai were flat to down slightly, while Australia stocks and copper rallied. This suggests that China weakness has already been priced into many markets, and that traders have decided to view the results as a sign of an economy transitioning not collapsing.
Trading in Japan was particularly active overnight following the Bank of Japan’s last meeting of the year, which echoed the reaction to the ECB meeting earlier this month. The Bank of Japan did introduce some new stimulus, a plan to purchase ETFs on stocks that invest in physical and human capital, the tune of ¥300B per year. JPY originally sank on the news of new stimulus but then turned right around and roared to big gains as with the ECB earlier this month, the new program isn’t such a big deal after all. It doesn’t start to April, is only a 10% increase on the ¥3T of ETFs the government is buying and is tiny compared with the 80T per year of government bonds the central bank is buying and could be partially offset by sales of stock holdings.
On top of all this, the vote was 6-3 indicating 2 additional members opposing the program, while at his press conference Governor Kuroda noted these moves should be seen as adjustments to give them more flexibility not as new stimulus.
As with the ECB earlier this month, if that was the best the Bank of Japan can do for stimulus, the new stimulus cycle appears to be pretty much over. JPY has gone screaming higher overnight on this realization against other major currencies.
US indices have been trying to stabilize over the last couple of hours after falling sharply last evening. The selloff in US stocks started when exchanges opened yesterday, so about 9:30 EST today we should see how much follow through we may get heading into the weekend and into the holiday season.
Crude oil, meanwhile is on pins and needles again today. WTI remains stuck below $35.00 but is holding $34.00 so far amid signs that recent selling may be getting overdone. If that gets taken out, look out below as next support may not appears until closer to $32.00 or even $30.00, particularly if another batch of stops get flushed out. Oil could remain active for quite some time until markets figure out what level it will take to get producers to respond to the glut in the market.
Canada consumer prices are due this morning but trading in the loonie has been driven primarily off of moves in USD and WTI this week. With CAD showing signs of being extremely oversold, however the news could potentially become the excuse that sparks a trading correction.
Blackberry shares could also be active today after results on sales and earnings came in better than expectations boosted by a 43% organic increase in software revenue. The company indicted its new PRIV Android device which recent launched has been well received but didn’t give any specific results.
Blackberry ($0.03) vs street ($0.15) sales $557M vs street $489M
Lennar $1.21 vs street $1.11, company noted tight construction labour market
Significant announcements released overnight include:
Bank of Japan maintains current ¥80T government bond buying program in an 8-1 vote, announces QQE changes with an 6-1 vote
Upcoming significant announcements include:
8:30 am EST Canada consumer prices street 1.5%
8:30 am EST Canada core CPI street 2.3%
9:45 am EST US Markit flash service PMI previous 56.1
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