BOJ’s Kuroda picks up the QE baton from the Fed, believing that his policy clearly having a positive impact on economy

Sep 19 • Mind The Gap • 1560 Views • Comments Off on BOJ’s Kuroda picks up the QE baton from the Fed, believing that his policy clearly having a positive impact on economy

relay-raceNo sooner had the issue of the FOMC ‘non taper’ been addressed and attention shifted to the overnight/early morning Asian session, in which the BOJ governor stated his belief that the current monetary easing programme the BOJ are engaged in, is having a positive effect in the economy.

If that belief is contained to creating a surge in the main Japanese equity market (the Nikkei), without any trickle down effect, then without a doubt Kuroda is correct, however, it’s at the expense of yen which has fallen sharply, the knock on benefit being a rise in Japanese exports given the cheapening of Japan’s domestic currency.

UK retail sales unexpectedly slumped by -0.9% in August missing the expectations of a 0.4% rise. In a services and consumer driven economy this fall will cause many economists, who have perhaps prematurely called the UK recovery as “on”, to recalibrate their predictions. The UK consumer may now be out of ammunition given that the cuts implemented by the UK government could be beginning to hit many of the spenders in the economy. The year on year figure for retail sales in the UK still looks favorable, until you realise that the gain was mostly due to the ‘Olympics effect’, felt in August 2012.

 

The ONS;

On the month, the picture was one of contraction. Following strong growth of 1.1% in July 2013, the quantity bought in the retail sector fell by 0.9% in August 2013. Despite this fall the level of goods bought remained high.

The main source of downward pressure came from the food sector (-2.7%), where feedback suggested that sales were back to a more normal level for this time of year. This followed a strong performance in the previous month (2.7%) when sales were boosted from the hot weather.

 

Market snapshot at 10:00 am UK time

In the overnight session the Nikkei rose by 1.80% on the day, Hang Seng by 1.67% and the CSI by 0.21%. The ASX 200 closed up 1.10%.

European markets exploded out of the blocks at this morning’s open due to the momentum caused by the FOMC no taper decision late yesterday evening. STOXX is up 0.95%, the UK FTSE up 1.37%, the CAC up 1.01%, the DAX up 1.17%. The Athens exchange is up 1.92% whilst the Syrian conflict sensitive Istanbul exchange is up 7.19%

Commodities have enjoyed positive gains in the morning session, ICE WTI oil is up 0.48% at $108.58, NYMEX natural is up by 0.48% at $3.73 per therm. COMEX gold continued its stellar rise of yesterday, up 4.35% at 1364.30 per ounce, whilst silver on COMEX is up 6.59% at $22.98 per ounce.

Looking towards the New York open the DJIA equity index future is up 0.25%, the SPX up 0.31% and the NASDAQ up 0.26%, suggesting that the USA indices will open up once the New York bell is rung.

 

Forex focus

The dollar has weakened to a seven-month low versus the euro and the yen slumped as the Federal Reserve’s unexpected hold in monetary policy sent stocks higher cooling demand for haven currencies.

Sterling slipped by 0.5 percent to $1.6068 in the London session, the biggest decline since Aug 22nd. It climbed to $1.6163 yesterday, the highest level seen since Jan 11th. The U.K. currency weakened 0.8 percent to 84.40 pence per euro after retail sales (including fuel) dropped by 0.9 percent from July, the Office for National Statistics said. The median forecast of 20 economists in a Bloomberg survey was for a 0.4 percent gain.

The 10-year UK gilt yield dropped 15 basis points, or 0.15 percentage points, to 2.85 percent, after sliding to 2.83 percent, the lowest level seen since Sept 3rd. The 2.25 percent bond due in September 2023 rose 1.26, or 12.60 pounds per 1,000-pound face amount, to 94.815.

The greenback slipped 0.2 percent to $1.3548 per euro after reaching $1.3553, the weakest level seen since Feb 7th. It gained 0.9 percent to 98.84 yen after falling 1.2 percent yesterday. Japan’s currency dropped 1.1 percent to 133.91 per euro after Kuroda’s commitment to further easing was announced. The U.S. Dollar Index fell 0.1 percent to 1,007.17 early in the London session, set for the lowest close since Feb 19th.

The dollar has declined by 2.1 percent during the past week, the worst performer amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The yen has lost 1.3 percent and the euro was little changed.

New Zealand’s gross domestic product grew 2.5 percent in the three months through to June 30th from a year earlier, beating the median forecast of 2.3 percent in a Bloomberg survey. The kiwi climbed 0.5 percent to 84.13 U.S. cents after touching 84.22 cents, the highest level seen since May 9th.

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