– It’s not just Pakistani batsmen raising the bat this morning. Bank of Japan unleashed shock and awe on markets Friday in a manner that must leave Mario Draghi cold.
– The dual impact of more QE from the BoJ and the reforms to the state pension fund (GPIF) which will increase allocations to foreign stocks to 25% from 12% (buying foreign stocks = yen selling) saw USDJPY rally 2.77% by the New York close to 112.32.
– The Nikkei itself was up 4.83% and according to the NAB strategy team, “It was this GPIF story that allowed European and US stock markets to key so positively off the Nikkei’s surge.”
– Europe surged on the hope that this week’s ECB meeting might finally deliver on Draghi’s endless promises. This helped stock traders shake off the big fall in German retail sales which highlights just how weak things are getting in Europe’s largest economy.
– In the end, the DAX was up 2.33% to 9,327, the CAC rose 2.22% to 4,233 and the FTSE 100 rose 1.28%. In Milan and Madrid, stocks were up 3.07% and 2.09% respectively.
– The US was less ebullient, perhaps because personal income (0.2%) and spending (-0.2%) were lower than expected but the Chicago PMI (66.2) and Reuters/University of Michigan consumer confidence (86.9) were both stronger than expected.
– So at the close, the Dow was up 1.14% to 17,391, the Nasdaq rose 1.42% while the S&P 500 closed just below the all-time high at 2,013 up 1.17%.
– Locally, the SPI 200 is up 8 points to 5,526 bid. With gold, iron ore and coal all lower, the miners might struggle a little today.
– In the rest of Asia, the Nikkei’s strength dragged the region’s bourses higher with the Hang Seng up 1.25% while stocks in Shanghai were lifted 1.21%. On Saturday though, the release of the Chinese NBS manufacturing PMI of 50.8 was a disappointing miss. Today we get the HSBC PMI and National non-manufacturing PMI from China. Japan is out on a public holiday though, so we may not get the follow-through across the region that may have been expected.
– On Currency markets, the yen and yen crosses were the big story. AUDJPY traded up to a close of 98.72, the recent August high and the highest level since AUDJPY fell out of bed in May 2013. The euro is, strangely, still hanging in there at 1.2519 and sterling is at 1.5991. The Aussie has fallen out of bed this morning after the Chinese data and general US strength to 0.8733.
– On Commodity markets, gold has broken the big support level and is on its way lower if the technicians are to be believed. At $1,173, it could fall another $100-$150. Iron ore fell 31 cents a tonne for December delivery to $78.73 while Newcastle coal dropped 30 cents to $64.30 a tonne. Elsewhere, crude dipped 42 cents a barrel to $80.70, copper was quiet at $3.05 while soybeans rose 1.89%, corn was 0.59% higher but wheat dipped 0.82%.
On the data front, it’s a huge start to the week with a raft of important manufacturing PMIs in Australia, China, Korea, Taiwan, India, France, Italy, Germany, the UK and the US. Australia also gets TD inflation and building permits.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Gold was one of the casualties of Friday’s Bank of Japan announcement. It produced a stronger US Dollar, which all else equal hurts the gold price. At the same time, there is no sign of inflation. World economies generally have plenty of spare capacity and inflation is below target in most countries. All bad news for gold.
Friday saw gold break below its $1180 support. This would have to rank as one of the most discussed and watched chart levels in world markets at the moment. As the chart below shows, it was the bottom end of a large triangle formation that had contained the gold price since June 2013. The break below this support is a sign of weakness and Friday’s large red candle suggesting strong downward momentum is not a great sign.
BUT. It’s not uncommon to see a false break out of triangles like this on the 3rd test of support AND price has arrived at a Fibonacci level based on projections of the latest 5-swing decline. These levels are best not used as predictions that price will bottom here, especially given current strong momentum, but the level might be worth keeping an eye on.
If price does actually bottom with a trend trough around these levels it could be a significant low.
Ric Spooner, Chief Market Analyst CMC Markets
You can follow Ric on Twitter @ricspooner_CMC