The major Asian indexes closed lower, especially the Shangai composite which was losing almost 2.50% at 7:15 am. The only exception was the Nikkei. The Japanese stock market continues to fluctuate according to the rumors about the amount of the tax plan incentive that the Abe government promised. Yesterday, the press pointed to 57000 M.USD this morning circulated news that indicated an amount of 254000 M.USD.
At yesterday’s meeting, the Central Bank argued that consumption (which is the main engine of the economy) continues to accelerate and the labor market recovered significantly after reading May. While not explicitly referring to Brexit, the Fed acknowledged that the short-term risks to the economy decreased. Still, the central bank admitted that it will continue to closely monitor the evolution of inflation (which still remains below the desired level) and the evolution of the world economy. This improved perception of the US economy and the reduction of external risks open the possibility of a rise in interest rates at the next meeting in September.
The long-awaited meeting of the Bank of Japan (BoJ) ended up having a limited impact on Asian session. In addition to a somewhat volatile initial reaction, the major Asian indexes ended trading with contained variations. The BoJ announced that it will double the annual purchase ETF to 56700 M.USD as well as the special program of providing credit to local businesses for a total of 24,000 M.USD. Despite the rise in the Nikkei, the appreciation of the Yen indicates that this decision fell short of the anticipated by the market.
The highlight of today will for the release of the minutes of the last meeting of the Fed (the 26 and 27 July), which may give some signs on the posture of the Fed. The improved perception of the US economy and the reduction of external risks open the possibility of a rise in interest rates at the next meeting in September. However, since this meeting important data have been released, and such as the Fed itself said, with a bipolar character, such as reading of GDP for the 2nd quarter, the employment report for the month of July and retail sales in the same month.
Asian markets closed in different directions. In Tokyo, the Nikkei reached the minimum of the last two weeks, since the appreciation of the Yen decreased investor interest. It was announced today that exports in Japan fell in July at the fastest pace since the global financial crisis, due to the appreciation of the yen and the weakness of external economies.
Last Friday, the US stock market ended lower, with investors showing some concern regarding the Fed decision at the next meeting. Still, the Nasdaq managed to end the eighth consecutive week of gains since April 2010. The session was marked by the traditional weak liquidity and the absence of significant catalysts or business nature, as well as macroeconomic, so there has been another day without any sign to help investors to infer about the actions of the Central Bank. The minutes of the last meeting of the Fed revealed on Wednesday, did not help much in this regard. Moreover, in recent days, investors have also weighed their decisions based on the words of some members of this body as well as the crude oil price behavior. On Thursday, the President of the Federal Reserve of San Francisco, John Williams, joined the group of members that supports a rise in interest rates in the coming months, stating that if the Fed wait too long, such an attitude can entail costs for the economy. In this context, attention is turning to the statements of Janet Yellen in Jackson Hole Conference scheduled for August 26, Friday, the day will be published important data for the country’s economy, such as GDP and the confidence index of consumers.
The appreciation of the Japanese currency detracted from the performance of the leading exporting companies, specially automakers (like Honda and Mazda). The liquidity was lower, with investors waiting for the conference in Jackson Hole.
The banking sector may now be in focus after news about a private study in the UK, which revealed that British banks may lose a large number of domestic and European customers following the outcome of the referendum held last June and which resulted in the Brexit. The oil sector may be conditioned by the oil price drop after the unexpected increase in inventories in the US.
The market has been hovering a sense of expectation for the conference in Jackson Hole (Friday), keeping investores vigilant and more cautious, given the high degree of uncertainty as to when will happen the next change in interest rates of Fedfunds. It will therefore be important to monitor the intervention of Jannet Yellen in this event on monetary policy, for any more accurate signal relating the course of monetary policy in the short term.
Unlike what happened in recent years, August has been characterized by a very low volatility. In the last two weeks, the S & P ranged between 2168 and 2193. From a technical point of view, a break of the top of this range would signal the resumption of the upward movement of the markets. If the S & P declines below 2168 then increases the probability of a short term correction. Although it’s not possible to predict if the next move, some technical indicators give a higher probability for the support (2168) to be broken.
One factor that may affect the S & P’s behavior is the evolution of the ten-year treasury yields of US government bonds. Since mid-July, the yields to 10 years have fluctuated between 1.45% and 1.63%. If increases the prospects of a rise in interest rates by the Fed is not to exclude that yields exceed the 1.63%. This level is important from a technical point of view because if surpassed may signal an upward movement in yields. In this scenario, the impact on the stock market would be negative.
The month of September is full of events that can offer some challenges to investors. The first is the employment report on Friday, followed by the meeting of the ECB (8th), meetings of the Fed and the Bank of Japan (21), the first debate between Hillary Clinton and Donald Trump (26 ) and the OPEC meeting (26-28).
The ISM index, which measures manufacturing activity in the country and is one of the most used tools in the analysis of economists, unexpectedly fell in August. In fact, the ISM fell from 52.6 to 49.4, against forecasts of 52.0. At this level, the manufacturing activity goes back a contraction phase, something not seen since February. The fall was cross the various components of the indicator, including the employment component, which fell to a phase of contraction.
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