As one door closes, another one opens as the saying goes and while we may have seen the end of the Federal Reserve’s bond buying programme for the time being and the ECB reluctant to step into the breach, it appears that the Bank of Japan has no such qualms, filling the void left by the US central bank as overnight they surprised the markets with the announcement of a fresh bout of monetary stimulus.
Concerns about slowing inflation and a sluggish economy appear to have persuaded a narrow majority of Bank of Japan members
to vote to increase the annual stimulus to 80 trillion yen from 60-70 trn yen in an open ended manner.
The bank also announced it increase its purchase of JGB’s by about 30trn yen and extend the duration to of its holdings to an average of 10 years.
Asia stocks surged overnight
and the resultant rally is likely to filter through to European markets this morning as investors cheer a further bout of monetary largesse, as the stimulus jamboree continues.
Despite all the optimism surrounding the US economy, which to a certain extent yesterday’s GDP numbers reinforced, there still remains an overriding concern about ongoing weakness in the European economy
, despite a surprise fall in German unemployment for October.
Fears of deflation grew yesterday after annualised German CPI fell back unexpectedly to 0.7% from 0.8
%. The month on month numbers also showed sharp declines, but this shouldn’t really have been a surprise given the sharp falls in Brent oil prices in the last two months from $105 to $85 a barrel.
This is where central banks have to look at the root causes of falling prices and falling fuel prices are likely to add as a mini stimulus
as more money goes into consumers’ pockets. This is likely to be a positive, not a negative for the Eurozone economy.
Yesterday German Chancellor Angela Merkel claimed that German domestic demand was at a very good level
. Well let’s see if she’s right because German retail sales for September should give us a good guide as to the accuracy of these claims.
Expectations are for a decline of 0.9%, down from a 1.5% rise in August.
As the morning unfolds the latest unemployment data from Italy
look set to underscore the problems facing the Italian economy.
Last weekend’s bank stress test results speak volumes as to the problems facing the Italian economy,
and the fact that these banks need to raise extra capital at a time when the economy needs investment, means that any turnaround in economic activity, let alone the unemployment rate will take a very long time.
Italian September unemployment is expected to rise from 12.3% to 12.4%,
with further rises in youth unemployment expected as well, while the broader measure of EU unemployment is expected to stay at 11.5%.
Further deteriorations here are likely to prompt further calls for the ECB to do more at next week’s ECB rate meeting,
with these calls likely to grow if the latest CPI numbers drop back in the same way as yesterday’s German numbers did for October.
Given that German CPI for October slipped back to 0.7%
, from 0.8% yesterday the latest EU CPI number
could well exhibit similar weakness when it is released later this morning, though expectations are for a rise from 0.3% to 0.4%
, though that was before yesterday’s weak German reading.
We finish the week with the latest income and spending data from September for the US
and given the weaker than expected personal consumption component in yesterday’s GDP number these are likely to be closely watched for evidence of any potential upward revision.
Personal spending is expected to slip back to 0.1% in September from 0.5% in August
, while incomes are expected to rise 0.3%. The spending numbers might surprise to the upside given that we saw the launch of the iPhone 6 and demand was quite high for these in the US.
The Q3 employment cost index
may also be worth watching in the context of a rise in inflationary pressures, with a rise of 0.3% expected.
Chicago PMI for October
is expected to come in at 60, down slightly from 60.5 in September.
– a sharp slide lower yesterday from 1.2770 has seen us push below the 1.2600 level. We need to see a concerted move below 1.2570 to argue for a move towards 1.2400. A move beyond 1.2800 argues for a move towards 1.2900 and the highs this month.
– the failure to follow through on this week’s move above 1.6150 has seen the pound slide back, and push below last week’s low, but we’ve yet to get close to the lows this year at 1.5875. Only a break below 1.5875 potentially opens up a move towards 1.5720.
– we continue to find support between 0.7855/65 but while we stay below the 0.7940 area then the risk remains for a move back towards the September lows at 0.7760.
– this week’s break above the 108.50 level has seen the US dollar surge beyond the previous higher at 110.00 suggesting the possibility of a move towards 115.00. The break overnight of 110 should now act as some support on any dips, a break of which would suggest a test back towards 108.50.
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