Monday Morning Cheat Sheet: 3 Stories Moving Markets
Major markets were mixed in Asia on Monday. Japan’s Nikkei surged 2.8 percent to close at a five-year high of 13,192.60, buoyed by a new monetary strategy announced last week. The Hang Seng was off just 0.04 percent, while the S&P/ASX 200 edged up 0.29 percent.
European markets had made modest progress into green territory by about mid-day trading, softening Friday’s losses. Germany’s DAX was up 0.35 percent, London’s FTSE was up 0.43 percent, and the STOXX 50 index was up 0.60 percent.
U.S. futures at 8:45 a.m.: DJIA: +0.12%, S&P 500: +0.27%, NASDAQ: +0.34%.
Here are three stories to keep an eye one:
1) Investors seem to be reacting favorably to Japan’s aggressive new monetary strategy, which was announced last Thursday and will begin taking effect immediately. This initiative, championed by BoJ Governor Haruhiko Kuroda and Prime Minister Shinzo Abe, shares a lot in common with the highly-accommodating monetary policy seen in the U.S. However, where the Federal Reserve is throwing $85 billion at the yield curve every month, or about 0.6 percent of GDP, the BoJ will be spending 7.5 trillion yen ($80 billion per month), or almost 1.4 percent of GDP. Purchases will be made in six installments a month.
Meanwhile, the yen weakened to trade at as low as 98.5920 to the dollar…
2) With a bailout in hand, Cyprus has moved closer to the periphery of Europe’s economic discussion. Emergency financing has been secured, a bank run has been guarded against, and most of the obvious damage has been done, chiefly to uninsured depositors. The nation’s economy and banking sector are ostensibly on the long road to recovery.
But against a backdrop of tight capital controls and a forecast for years of slow or negative economic growth, many economists and observers have floated the idea that Cyprus could leave the euro. Nobel winning economist, Christopher Pissarides, who chairs Cyprus’s new national council of economic advisers, told the BBC that it would be disastrous if Cyprus left the euro. However, he also points out that the economic leadership in Europe has become disorderly, and that policies have become increasingly contradictory.
3) “The fact they’ve been fooled multiple times by slumps in the U.S. economy means they’re going to be a little gun-shy on the exit strategy,” said Drew Matus, a former Federal Reserve Bank of New York economist, to Bloomberg. Matus was commenting on the Fed’s tendency to plan to curb its spending early in the year, only to boost spending later in the year after growth estimates fell short of expectations.
This year, Matus suggests, the Fed will make no pretense of curbing its spending and plow through the summer months with ongoing asset purchases.