Monday Morning Cheat Sheet: 3 Stories Moving Markets

Markets advanced in Asia on Monday. Japan’s Nikkei climbed 1.47 percent to a fresh five-year high, boosted by both a strengthening domestic economy and a still-weakening currency, which traded at 102.5430 to the dollar in morning trading. The Nikkei is up nearly 50 percent this year to date. In Hong Kong, the Hang Seng climbed 1.78 percent, while the S&P/ASX 200 climbed 0.55 percent in Australia.

Markets were mixed in mid-day trading in Europe as stocks reacted to the changing economic situation in Japan, and the ongoing conversation about monetary policy in the United States. Germany’s DAX was up 0.32 percent, London’s FTSE 100 was off 0.10 percent, and the STOXX 50 was off 0.16 percent.

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U.S. futures at 8:55 a.m.: DJIA: -0.13%, S&P 500: -0.16%, NASDAQ: -0.16%.

Here are three stories to keep an eye on:

1) Japan Upgrades Its Own Economic Outlook: Better-than-expected economic growth in the first quarter helped convince the Japanese government to upgrade its assessment of the economy. Japanese gross domestic product increased at a seasonally-adjusted annual rate of 3.5 percent in the first quarter of 2013, according to data released by the nation’s cabinet office last week. This is better than the 2.8 percent consensus growth estimate, and compares favorably to 1.0 percent SAAR growth in the fourth quarter of 2012.

GDP was up 0.9 percent on the quarter, driven primarily by personal consumption — about 60 percent of Japan’s GDP — which was up an annualized 3.7 percent. On the other side of the coin, capital expenditures (a proxy for business investment) declined 0.7 percent on the quarter. Exports climbed 3.8 percent on the quarter, while imports were up 1.0 percent.

The renewed case for optimism in the Japanese economy comes just ahead of the Bank of Japan’s two-day meeting that ends on Wednesday this week.

2) Short Positions in Gold Hit Record High: Hedge funds and large speculators held 74,432 short contracts for gold on May 14, according to Commodity Futures Trading Commission data compiled by Bloomberg. This is a 10.5 percent jump on the week, and is the highest level since the data begins in June 2006. The data show that the net-long position fell 20 percent in the week, the lowest level since 2007. All told, gold bears look like they are setting up a very powerful short thesis for the commodity.

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3) The Conversation is All About QE: The minutes of the last Federal Reserve Open Market Committee meeting will be released on Wednesday afternoon, and the question that investors can’t seem to get away from is “when will the Fed taper QE?” Record levels of bond buying have inflated the markets and created what many see as a delicate and dangerous price situation. Market participants have a real fear that the Fed’s withdrawal from unconventional policy will lead to market losses and a tough time of adjustment.

Evidence for a cutback is also apparent in the slowly-improving economic situation. Unemployment has edged down at a fairly consistent, albeit slow, rate for the past several months. The FOMC will meet on June 18-19 to discuss the next stages of the recovery, with at least four participants in the conversation calling for some sort of tapering of bond purchases this year.

Don’t Miss: Here Are the Euro Zone’s Woes in One Big Chart.

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