Thursday, April 04, 2013

Japan Ups The US In Quantitative Easing

The markets are mixed this morning in early trade.  The S&P is trading higher, led by materials stocks while the Nasdaq is lagging weighed down by technology issues like AAPL, GOOG, etc.

There hasn't been a whole lot of market moving news this am.  Weekly jobless claims rose more than expected for the week, but some are pointing to seasonal adjustments by the Dept. of Labor as skewing the figures.

Asian markets were mixed overnight.  China and Hong Kong were closed for a holiday.  But the big news was the Bank of Japan stepping up its asset purchase program by almost doubling it.  As a percentage of the country's GDP, Japan's quantitative easing is about 3x as big as the U.S.  The BofJ said it would continue to buy govt bonds, but would also buy REITs and ETFs over the next two years.  So they are really trying to reflate assets in hopes of igniting the wealth effect.

The downside of this action is that it is likely to continue to drive the yen lower, which will make Japan's exports cheaper compared the the U.S.  Global auto companies and manufacturers can't be happy about that.

The other news in Asia is the escalating tensions with N. Korea.  Yesterday the US announced it was moving a missile defense system to Guam as rhetoric heats up that N. Korea has long range missiles and is beefing up its nuclear capabilities.  Fun.

European markets are generally higher this morning.  The ECB met and held rates unchanged at 0.75%.  The Bank of England also held its rates steady at 0.50%.  ECB President Draghi said weak economic conditions seen in Q4 of 2012 have persisted this year so far, but the bank stands ready to act if needed. 

The dollar is slightly higher today while commodities are mostly weak.  Oil prices are lower near $92.70 and gold prices have fallen to $1550.  Silver prices are also lower but copper prices are higher.

The 10-year yield continues to slide, falling to 1.77% today. And the volatility index is higher again to 14.50, nearing the 15 level we have been looking for.

Trading comments: Markets continue to be choppy.  The S&P 500 has alternated between up one day down the next for the last 11 sessions.  I heard that the longest such streak of choppiness on record is 12 days.  So the market is looking for direction.  Yesterday's selloff came on higher volume, indicating some distribution.  Also, the small-cap Russell 2000 has become the first index to break below its 50-day average.  So right now it looks like this recent pullback could have some more room to run its course.  That has been a difficult strategy all year, so it wouldn't surprise me to see dip buyers come in again soon.  For its part, the 50-day average for the S&P 500 is currently around 1530 while the index still trades near 1555.  Food for thought.

KAM Advisors has long positions in AAPL and GOOG


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