Monday Morning Cheat Sheet: 3 Stories Moving Markets

Markets closed up in Asia on Monday. Japan’s Nikkei climbed 1.89 percent to 13,568.40, its highest close in nearly five years. Global policy makers, meeting in Washington on Friday, gave a much-expected nod to the Bank of Japan’s ambitious new monetary strategy. In Hong Kong, the Hang Seng climbed 0.14 percent, while in Australia the S&P/ASX 200 climbed 0.70 percent.

Markets were also up in Europe in mid-day trading, following signs that nearly two months of damaging political stalemate may shortly come to an end. Germany’s DAX was up 0.91 percent, London’s FTSE 100 was up 0.63 percent, and the STOXX 50 index was up 0.96 percent. Milan’s FTSE MIB climbed as much as 1.9 percent after the re-election of President Giorgio Napolitano.

U.S. futures at 7:50 a.m.: DJIA: +0.33%, S&P 500: +0.39%, NASDAQ: +0.51%.

Here are three stories to keep an eye on:

1) Easy Goes For The Bank of Japan: Global political and economic leaders met in Washington on Friday to discuss, among other things, Japan’s ambitious quantitative easing program. 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.

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Some global leaders, particularly those in developing nations, expressed concern that the scale of this policy would adversely affect international trade as the yen continued to weaken. (On Monday morning, the yen traded at 99.7470 to the dollar.) However, consensus seems to be that G20 leaders gave a nod to the BoJ’s program, and leaders accepted Japan’s government into pan-Pacific free-trade talks. Trade partners seem willing to tolerate a weak yen, provided Japan is able to successfully grow its economy…

2) The Price of Change in China: A series of economic indicators released last week seemed to suggest that economic growth in China moved down a gear. Gross domestic product for the first quarter rose 7.7 percent from the year-ago quarter, marking the first time in two decades that the Chinese economy experienced four consecutive periods of growth less than 8 percent. Even worse, the growth figure released Monday by the National Bureau of Statistics in Beijing was significantly below the expectations of analysts — so far below, in fact, that it was the worst estimate miss since the third quarter of 2008, according to data compiled by Bloomberg.

Slower growth in China will send ripples throughout the global economy, and many investors reacted negatively to the news of the slowdown. However, People’s Bank of China Governor Zhou Xiaochuan downplayed concerns that the slow growth represents any real weakness in the nation’s economy. Sub 8-percent GDP growth is the price that China has to pay if it is going to successfully restructure, modernize, and stabilize its economy. Analysts have suggested that the markets can expect to see more of the same in coming quarters.

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3) Stable Policy Will Mean a More Stable Economy: Italian lawmakers elected President Giorgio Napolitano to a second term in office on Saturday. Markets reacted favorably with Milan’s FTSE MIB index climbing as much as 1.9 percent. Observers are hopeful that President Napolitano will be able to preside over a broadly-based coalition government that will heal Italy’s fractious parliament. His election was supported by both the main center-left and center-right parties.

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