Market Comment 19th Sep 2012

The insatiable appetite for monetary stimulus around the world continues as the Bank of Japan has joined the party in an equally desperate attempt to try and get its economy moving again. 

It seems to be the fashionable thing to do by central banks at the moment and if ever there was one that knows about quantitative easing it’s the Bank of Japan. But if anyone should know that for most of the time the measures are as good as flogging a dead horse it’s the BOJ.

So who will be next in this ongoing monetary saga of never ending stimulus? The BOE seems to have almost run out of ammunition although the slight fall in inflation yesterday might get them warming the printing presses again before too long, especially since their counterparts have commenced some bolder measures that previously, they won’t want to be seen to be doing nothing. Then there’s the People’s Bank of China who have been monitoring the slow decline of their booming economy and they won’t want to be left out when everyone else seems to be enjoying the party.

Even ahead of the move in Japan the Dow last night saw some buyers come back into the market yesterday after a slight retracement pushing the index a few points higher to 13564. It seems investors took a second look at the latest round of stimulus measures announced by Ben Bernanke as unlimited and decided to cautiously go long again. It remains to be seen if this will translate into another convincing rally or any potential gain will be followed closely by profit taking, but at the time of writing it would seem that it’s the former taking place as we are calling the Dow to open up as much as 75 points at 13620.

At the open this morning the FTSE is trading at 5885, up nearly 20 points. Clients have been positioning themselves for further declines though as they largely remain short of the index and near term support and resistance can be seen at 5820, 5755 and 5930, 5960, 5985 respectively.

On the economic data front today there’s the release of the BOE minutes this morning and then a raft of housing data from the US this afternoon. The BOE minutes will be watched closely just to see whether there was any major split within the MPC in terms of extending the asset purchasing program. Expectations are that the vote to keep things on hold was unanimous since the committee is yet to see just how well the new Funding for Lending Scheme is working, so we will see at 9.30 this morning.

Following growing social unrest, Spain looked reluctant to accept austerity measures that will trigger a bailout call to the European Central Bank. As a result the euro was hit yesterday, losing 69 pips to 1.3043 after rising sharply from around 1.26 to the dollar in less than two weeks. This morning EUR/USD is at 1.3070 just edging higher in line with the general increase in risk appetite following the early morning Bank of Japan announcement of more quantitative easing measures, which at the same time have caused the Yen some excitement as EUR/JPY jumped over 100 pips from the mid 102 area to mid 103 area.

Bargain hunters after the previous day’s decline have pushed gold prices back up as investors continue to support the idea of returning inflation sometimes down the line. Although the rally lost some steam, that unlimited buying pledge from the Fed is a strong supporter of gold prices which yesterday recouped almost 10 bucks to $1771.

Federal Express, one of the bellwethers of the US economy cut its profit forecast for this year thus reversing an optimism which dominated the markets for the best part of last few weeks. The fresh doubts spilled into the energy complex and consequently the WTI crude prices continued to slump, losing $1.42 to $95.29 a barrel. The weekly inventories report due later today will be closely watched for any hints on the next possible direction.
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Market Comment 19th Sep 2012

The insatiable appetite for monetary stimulus around the world continues as the Bank of Japan has joined the party in an equally desperate attempt to try and get its economy moving again. 

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