Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day
Good Morning Traders! The Bank of Japan policy statement was released with a new form of easing. Yet another desperate attempt at stoking inflation 8 years after the financial crash.
Let’s recall…inflation is caused by too many dollars chasing too few goods….AND…normal or increased demand. Central banks forgot that last bit about demand.
Further, the Bank of Japan apparently has no insight into the Japanese consumer, who has hunkered down financially refusing to spend. Thus, the latest iteration of "well, we didn’t try this, so why not," is the last throw of the dice.
The new form of easing caps Japanese government 10-year bond yields at zero percent. The current almost 80 trillion government bond buying will continue (this is QE). Longer term government bonds will not be purchased in order to allow theses rates to rise. Interest rates were held at the current minus 0.1%.
"If the pledge is credible then it should raise public expectations of the price level in the future. That, in turn, should lower real interest rates and stimulate the economy because loans will be paid back in a devalued currency (ft.com)."
Overnight markets are trying to figure out just what this policy means in reality… since it is all theoretical abstract and modeling by technocrats.
Yen initially fell, but has rallied. Not what the Bank of Japan intended. Rising Yen hurts demand for Japanese exports.
Nikkei 225 has responded positively, because stock markets love an inflationary environment. So for now…the dogs are eating the latest offering.
DAX and STOXX 50 saw Asia rally and followed. But there is more to the story of rising equity index futures… traders have a learned behavior attitude "no one lost money buying equity index futures as crude rises." Crude started it’s run yesterday morning. The live trading room caught the bottom.
Oil’s rise was extended after the American Petroleum Institute (API) data released later in the day showing a 7.5 million barrel drop in U.S. crude inventories to 507.2 million barrels, almost twice the fall expected by analysts (Reuters).
All focus for global traders turns toward the 2PM ET FED monetary policy statement and the 2:30PM ET Yellen press conference. Plan for an extended lunch break.
We are likely to see morning action associated with the crude report and most likely a quiet lunch period. This is normal in front of FOMC.
The OECD think tank issued this statement today:
"Exceptionally low – and in some cases negative – interest rates are distorting financial markets and raising risks across the financial system. A disconnect between rising bond and equity prices and falling profit and growth expectations, combined with over-heating real estate markets in many countries, increases the vulnerability of investors to a sharp correction in asset prices."
My take: Wall Street traders will look at this OECD statement and say, "sounds like you’ve got a problem…good luck."
Wall Street can be pig-headed to react caused by years of pushing stock prices higher each time a major central bank issues additional easing.
MBA Mortgage Applications 7:00 AM ET
EIA Petroleum Status Report 10:30 AM ET
FOMC Meeting Announcement 2:00 PM ET
FOMC Forecasts 2:00 PM ET
Fed Chair Press Conference 2:30 PM ET
There is a 22% probability assigned to a FED rate hike today. Most believe the FED will do nothing, while issuing continued tough talk and "data dependent" comments. Traders will focus on how US dollar and US bonds are affected. Equity index markets may rally if nothing is done, or drop if hawkish language is present. It’s a coin toss what might happen.
Since Nikkei 225, DAX, and STOXX 50 are up higher as compared to USA equity index futures, we expect ES, YM, TF, and NQ will rise at the open. Remember, crude supports.
$44.60 on CL remains our line in the sand denoting bullish or bearish price bias. Keep this line on your charts.
VIX has popped higher in front of today’s FED FOMC statement.
Natural Gas makes a chart statement moving through resistance yesterday.
Coffee makes a statement testing resistance today.
US dollar lower overnight means Gold and Silver are higher.
Copper losing bull interest. Copper’s hope today is for a weaker US dollar…otherwise the sudden rise last week looks unsustainable.
Grains weaker incrementally. If US dollar weakens significantly in knee-jerk, then grains could find support. I am suggesting we scratch December Corn taking small loss in front of the FOMC statement, which is a wild card.
Bonds are lower incrementally. This is a bond event day. Be careful.
Canadian dollar higher with crude. Aussie dollar higher. Yen higher to the Bank of Japan’s dismay. US dollar and Euro incremental action along with Pound.
Think About This!
Once more we see a pharmaceutical firm abusing free market capitalism by jerking up the price of their product…this time an acne cream. The attitude seems like "everyone is price gouging so why not us?"
Novum last week raised the price of a 60g tube of Aloquin, which is used to treat conditions such as eczema and acne, by 128 per cent to $9,561.
The ointment contains two inexpensive main ingredients: iodoquinol, a decades-old antibiotic that prevents fungal growth, and aloe polysaccharides, derived from the aloe vera plant. A similar cream containing iodoquinol is readily available as a generic and costs less than $30, while a tube of aloe vera can be bought for a few dollars. Aloquin’s label says it is “possibly effective”, meaning the US Food and Drug Administration has decided there is only limited clinical evidence suggesting it is safe and works as intended (ft.com).
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