Here is what you need to know.
Japan introduced negative interest rates. The Bank of Japan stunned markets by introducing negative interest rates at Friday’s policy meeting. In a 5 to 4 vote, the central bank said it would charge banks an interest rate of -0.10% on their excess reserves. “Although a negative interest rate is not applied to the total outstanding balances of current accounts, costs incurred with an increase in the current account balance brought by a new transaction will be -0.1% if it is applied to a marginal increase in the current account balance,” the BOJ said in its statement. Japan’s stock market, the Nikkei, finished the day higher by 2.8% following the announcement. Also notable is the impact on the Japanese yen, which is weaker by 1.8% at 120.90 per dollar. Heavy buying of Japanese bonds pushed the 10-year yield down 12.5 basis points to 9 bps (0.09%).
Stock markets around the world are up. China’s Shanghai Composite (+3.1%) led the gains in Asia and Spain’s IBEX (+1.4%) is the top performer in Europe. S&P 500 futures are up 13.50 points at 1894.25.
Money is pouring into bonds. The introduction of negative interest rates in Japan has caused money to rush into bond markets all over the world, pushing yields lower. Heavy buying in Europe is having the biggest impact on Portuguese yields, where the 10-year is down 12 bps at 2.84%. Elsewhere in Europe, Germany’s 10-year yield is off 6.6 bps at 33.7 bps (0.337%), making for the lowest reading in nine months. Here in the US, the 10-year is lower by 6 bps at 1.92%, a level last seen in April.
Russia’s central bank warned on inflation. The Bank of Russia held its benchmark interest rate at 11%, as expected. However, policy makers warned they cannot rule out an increase to the rate if inflation picks back up. “On the backdrop of yet another oil price slump, monthly consumer price growth rates stabilised at a high level, with a higher risk of accelerated inflation,” the central bank said in its statement. “The deterioration in the global commodity markets will require a further adjustment of the Russian economy.” The Russian ruble is stronger by 0.1% at 76.1950 per dollar.
Eurozone inflation picked up. Data released by Eurostat showed consumer prices in the eurozone edged up 0.4% year-over-year in January, matching estimates. The reading was an improvement from the 0.2% YoY gain in December; however, inflation remains well below the European Central Bank’s 2% target. The euro is weaker by 0.2% at 1.0918.
Amazon had a brutal quarter. The online retailer earned $1 per share, missing the Bloomberg consensus of $1.55 by a wide margin. Revenue jumped 22% year-over-year to $35.75 billion, but that was a bit below the $35.9 billion that Wall Street was expecting. Amazon’s heralded cloud computing service, AWS, grew 69% YoY to $2.4 billion, but that was shy of the 80% growth of the previous two quarters. The company’s revenue guidance of $26.5 billion to $29 billion was in-line with the Wall Street expectation of $27.65 billion. Shares of Amazon are down 11% in pre-market trade.
Facebook is worried about ad blockers. In its annual 10-K report, Facebook mentioned ad blockers have impacted revenue “from time to time.” The social media giant makes the lion’s share of its revenue, about 96%, from advertising, so this is a real concern. Facebook warned “…if such technologies continue to proliferate, in particular with respect to mobile platforms, our future financial results may be harmed.”
Xerox is splitting into two companies. Xerox will be split into two companies, a hardware operations business and a services business. Activist investor Carl Icahn, who has amassed a 7.1% stake in the company, will be given three seats on the board of one of the companies.
Earnings reports continue to flow. AbbVie, American Airlines, Chevron, Honda Motor, Honeywell, Phillips 66, Simon Properties, Sony, Whirlpool and Xerox are among the names releasing their quarterly results ahead of the opening bell.
US economic data is heavy. GDP and the Employment Cost Index will be released at 8:30 a.m. ET before Chicago PMI and University of Michigan Consumer Sentiment cross the wires at 9:45 a.m. ET and 10 a.m. ET, respectively.