Back on the 16th October I wrote in our blog what I believed to be the 6 reasons for the global meltdown we were witnessing in global stock markets. Since that piece was published, I have pretty much had “egg on my face” and then some.
Here were my 6 reasons: (1) CPI/Inflation+, (2) German ZEW/Outlook, (3) Ebola, (4) FED ends QE, (5) Oil, (6) Fighting/Conflicts and just as an extra measure, (7) crazy IPO prices. My reasons, while all valid, have been completely ignored and torn to threads by investors who have gone berserk piling back into stocks. The S&P now stands at the years high’s, Japan’s Nikkei rallied 5% overnight, and European Bourses are trading up over 1.50% as I write this. Stock markets have quite simply gone berserk.
We know the FED have now officially ended QE, but in its place the ECB and BoJ have stepped in to drive up economic growth in their respective economies. No one really cares about the “PROFIT WARNING’S” major companies are announcing to the markets. It is irrelevant. As long as the CB’s continue to print money that’s good enough for the market. As i said above, not only does this leave me totally confused, but the “egg on my face” is now dripping all over me.
The BoJ (Japan) overnight announced further monetary stimulus to fight against falling inflationary expectations and nudged the market that it will do everything in its power to reach that goal. USDJPY was trading sub 109.50 before the announcement and shot up 200 pips to trade up to 111.50 after the announcement. The BOJ, announced that the monetary stimulus is set to rise to 80 trillion yen. The BOJ is set to extend its bond maturity buys and sees no problem with negative yields. What the BoJ is trying to do in effect is rule out any talk of deflation. The Japanese economy finds itself in a precarious moment of trying to beat deflation. The BoJ is trying to make sure that the momentum pushing up wages, continues. The BOJ furthermore made the assumption that the government will raise the sales tax (VAT) once again (last in April 2013), though that decision is a political one and the BoJ have “no” say in that decision. BoJ gov. Juroda ended by saying he does not see a need to act any further, though that could change should the circumstances require it.
To add egg to my face, the US announced Q3 GDP yesterday at 3.50% reinforcing Gov. Yellen’s post FOMC conference that the US economy is flourishing and steadying itself. Gov Yellen made no reference to the labour market, leaving the door open to dropping the phrase “considerable time” and in so doing preparing the markets for a rate hike as early as June 2015 (as noted in our blog yesterday). Obviously then, the markets are now “saying” they are comfortable to operate without the help of the FED and that the profit warnings are neither here nor there.
Besides the rally in stocks, the USD has come out the blocks fighting back after the recent bashing. In the past 36 hours we have seen the USD mount a spectacular comeback with the EURUSD 1.2560 from 1.2750, GBPUSD 1.5980 from 1.6160, AUDUSD 0.8810 from 0.8900, NZDUSD 0.7860 from 0.7960 to name but a few. My one saving grace has been my thoughts on the USD overall. Just a couple days ago I mentioned my 31 Dec prediction at 1.2000 being a little “too” aggressive, with EURUSD 1.2200 more likely. Lets not quibble over 200 pips here or there. The momentum seems to be back in the USD’s belly and it is BACK TO NORMAL TRADING, BUYING THE USD.
I would be telling fibs if I said everything makes complete sense to me!!! Then again I am in good company
Have a good weekend.