Friday Morning Cheat Sheet: 3 Stories Moving Markets

Major markets were mixed in Asia on Friday. Japan’s Nikkei climbed 1.58 percent as central bank chief Haruhiko Kuroda brushed off concerns that an aggressive new stimulus plan would cause asset bubbles. Meanwhile, the Hang Seng fell 2.73 percent, ostensibly due to fears about a strain of bird flu in China that claimed a sixth victim. Shares of airlines suffered steep losses. The S&P/ASX 200 was off 0.45 percent.

Major markets headed decidedly lower in early-afternoon trading in Europe. Germany’s DAX was off 1.52 percent, London’s FTSE 100 was off 1.19 percent, and the STOXX 50 was off 1.26 percent.

U.S. futures at 8:45 a.m.: DJIA: -1.04%, S&P 500: -1.25%, NASDAQ: -1.22%.

Here are three stories to keep an eye on:

1) “We will be vigilant of the risk of a bubble,” said BoJ Governor Haruhiko Kuroda to the nation’s lower house of parliament, according to Reuters. “I don’t think there’s a bond or stock market bubble now and I don’t see one emerging any time soon. But we will be vigilant of the risk.”

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Set forth by Prime Minister Shinzo Abe, Japan’s 2 percent target inflation rate will be monumentally difficult to achieve. Rising to the challenge, the nation’s central bank recently announced a massive round of stimulus spending that will double the money supply in as little as two years. Japan will begin a bond-buying program for about 7 trillion yen ($73 billion) per month, or 1.4 percent of GDP. By comparison, the United States’ bond-buying program is about 0.6 percent of GDP. And just as the Fed’s program has its critics, some observers think that Japan’s strategy will lead to market distortion…

2) Bird flu concerns had spread to Europe as well by Friday afternoon trading, with major airlines taking hits and leading index losses. These concerns have added to a growing perception that economic growth in the United States has slowed, as evidenced by this week’s disappointing labor market reports.

Compounding these fears is recently-released data that showed overall business activity in the eurozone declining at a faster rate than before. This indicates that not only is the region’s economy getting worse, but that the monumental efforts of the Troika may not be working as planned. This has led economists to speculate that the ECB may announce unconventional monetary policies in the coming months.

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3) At home, President Barack Obama is expected to propose cuts to Social Security and Medicare next week. The decision comes at a particularly tense time in America’s ongoing fiscal debate. After a New-Year’s tax agreement and the sequestration spending cuts, the nation’s budget is as battered as ever and in desperate need of healing. However, par for the course, the two parties in Washington can’t agree on what type of surgery is needed. The longer the budget lays on the table, effectively anesthetized and bleeding out, the worse the situation becomes.

Many see Obama’s decision to finally address entitlements as an attempt to reach across the aisle and express a willingness to cooperate with Republicans who have taken a hard line against further tax reform. This year, the deficit is expected to equal 5.5 percent of GDP. Obama’s proposals would ostensibly bring that down to 1.7 percent by 2023.

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