BoJ remains steady, yet bullish markets push higher
- FOMC continues to drive bullish sentiment
- BoJ keeps stable yet election provides renewed mandate
- German GFK survey looking to top off strong week.
The end of a memorable week in the markets, which seemed likely to go out with somewhat of a whimper given the relative lack of events to get the market moving. However, this doesn’t look like it will affect sentiment too much with many still reeling from the massive news out from the likes of the FOMC, Japan and Russia. As a result, the European markets are hoping to extend the positive sentiment seen overnight in Asia, by pushing yet higher and closing out the week on a positive note. The FTSE100 is expected to open up by 77 points, CAC by 53 points and DAX by 106 points.
The dominant market sentiment driver appears to be the FOMC statement from Wednesday, which saw Yellen and co produce an increasingly dovish tone amid calls from many for the Fed to finally be done with the ‘considerable time’ section of the statement. In fact, they moved the opposite way, noting that they will be ‘patient’ with the process; no doubt a reference to the need to hold off until the oil price and thus inflation rate stabilises. Ultimately, Saudi Arabia’s decision to push oil prices lower has brought about an unexpected source of market bullishness, where the likes of the BoJ and ECB are now even more likely to push for further easing, whilst the likes of the UK and US have taken a step back somewhat from what looked like a strong push towards raising rates in 2015.
Overnight, the BoJ kept monetary policy stable at 80 trillion yen of asset purchases monthly; a move that was largely expected by all. Kuroda, along with Shinzo Abe was essentially on the stand when Sunday’s election went ahead given that his loose monetary policy has been a backbone of so-called ‘Abenomics’ as we know it. Thus the ability to retain a super-majority will have emboldened Kuroda and the BoJ to remain bold with their monetary policy going forward. With inflation likely to continue falling due to the impact of oil prices, it will be interesting to see if the BoJ will move yet again in heightening the rate of asset purchases. There is certainly the need to push both growth and inflation higher, but the question is whether the BoJ really believes that another shift in the rate of purchases will make an impact. Given that we have only recently seen a seismic shift from 50 to 80 trillion yen of QE, it is highly likely that the committee will leave the effects to work through into the economy for some time and only then will they know how effective it is by itself at raising prices. Thus as we come into 2015, it is not unlikely that we will see another rise in easing, yet Q1 seems to be somewhat of a stretch.
Looking at the European session, there seems to be very little in terms of major events, with one of note coming in the form of the German GFK consumer climate survey. This release has the chance of topping off a very strong week for the German economy following very strong manufacturing PMI, ZEW and Ifo surveys. Conditions are clearly improving the Europe biggest economy and that can only be a good thing for the eurozone. Signs point towards a potential bottoming out in eurozone fortunes of late and this is likely to have been driven by Germany. Given that surveys are typically seen as a great indicator of future quantitative figures, a clean sweep of positive figures would be a huge boost to an ailing economy of late. Markets expect a third consecutive increase in this figure, from 8.7 to 8.9, yet given the trend we have been seeing, I think it may even go higher yet.
About Joshua Mahony
Joshua Mahony is Research Analyst at Alpari UK. Having joined in 2012, Josh’s previous experience in the industry includes time spent on the trading floor at Barclays Capital and working for Deutsche Bank in New York for a year. Originally coming from an economics background, Josh then traded equities in the wake of the 2007/2008 financial crisis. He is now turning that experience towards the forex markets. Josh writes market commentary that has featured on websites and publications including the Financial Times, Reuters, the Guardian, ABC News, CityAM, the Washington Post and the Miami Herald. You can follow Josh’s analysis on Twitter, and Google+