Friday Morning Cheat Sheet: 3 Stories Moving Markets

The markets closed up in Asia on Friday. Japan’s Nikkei climbed 0.73 percent, the Hang Seng climbed 2.33 percent, and the S&P/ASX 200 climbed 0.15 percent.

The markets in Europe were also up in mid-day trading. Germany’s DAX was up 0.42 percent, London’s FTSE 100 was up 0.62 percent, and the STOXX 50 index was up 1.05 percent.

Futures at 8:55 a.m.: DJIA: +0.19%, S&P 500: +0.37%, NASDAQ: +0.38%.

Here are three stories to keep an eye on:

1) Japan’s Third Arrow: “Japan’s economy has finally stopped weakening and has shown some signs of picking up,” Ryuzo Miyao, a member of the Bank of Japan’s Policy Board, said in a speech this week. “Overseas economies remain in a deceleration phase on the whole, but the U.S. and Chinese economies are heading toward a pick-up.”

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“With regard to the outlook,” he continued, “Japan’s economy is expected to return to a moderate recovery path, mainly on the assumption that domestic demand will remain resilient, partly due to the effects of various economic measures, and th at growth rates of overseas economies will gradually pick up.”

For Japan, years of stagflation will be addressed with the first two of a three-arrow approach. Following the initiation of a loose monetary policy and a tremendous round of government spending (the first two arrows), Prime Minister Shinzo Abe previewed the third arrow on Friday. The third arrow consists of free-trade talks, efforts to make it easier for women to work, and promotion of workforce transition from mature to sectors to growth sectors…

2) Is This the Floor? Gold edged up on Friday morning to just over $1,400 per ounce. The price action in gold over the past week has attracted a great deal of attention. The precious metal suffered its worst decline in decades, and has investors and analysts wondering if the great run is over. However, central banks are finding the move as another reason to keep monetary easing policies very accommodative.

Gold’s winning streak of annual gains appears to be in jeopardy for the first time in twelve years. Over the course of only two days, the metal plunged $200 to reach its lowest level since February 2011. In the process, it logged its worst one-day percentage drop since 1980, and the largest fall in dollar terms on record. On a technical basis, it reached its most oversold reading since at least 1975.

3) European Bailouts: Who’s Next? The short answer to the question, according to mounting speculation among curious observers, is: Slovenia. The nation — wedged between Austria, Hungary, and Croatia at the north-eastern edge of Italy — fell into the crosshairs last week when its government failed to raise its target of 100 million euros ($131 million) at a debt sale. Selling just 56 million euros ($73.3 million) worth of six-month and one-year bonds sent yields on the nation’s dollar-denominated benchmark bond up to levels only seen at other bailout-recipient nations, or about 6.17 percent.

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For some context, the Organisation for Economic Cooperation and Development recently published an economic survey of Slovenia that painted a rather grim picture. Main findings include: “The economy is in a deep recession,” “Slovenia is facing a severe banking crisis,” and “Potential growth has fallen significantly since the onset of the crisis.” The International Monetary Fund expects that the country will have to borrow as much as 3 billion euros ($3.93 billion) this year in order to repay maturing debt, assist banks, and finance its budget.

However, Slovenia tested the international perception of its economy on April 17 when it sold more than double the amount of planned Treasury bills. The nation raised 1.1 billion euros ($1.44 billion) worth of 18-month notes, which compares against its target for 500 million euros worth. “Today’s auction takes pressure off the government’s finances for the coming months and possibly even until the end of the third quarter or early fourth quarter,” Abbas Ameli-Renani, an emerging-markets economist at Royal Bank of Scotland Group, wrote in a note seen by The Washington Post.

EU Non-Performing Loans Percent to GDP

Source: IMF (2013), Financial Soundness Indicators, International Monetary Fund, March, http://fsi.imf.org and Bank of Slovenia.

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