Wednesday Morning Cheat Sheet: 3 Stories Moving Markets

Markets were mixed in Asia on Wednesday. Fueled by optimism surrounding central bank stimulus, Japan’s Nikkei once again hit a fresh five-year high, and the yen weakened slightly to 102.9210 to the dollar. Sony (NYSE:SNE) jumped nearly 6 percent in Japan, although is off about 2 percent on the NYSE, after a newspaper reported that the company was evaluating Third Point’s suggestion to spin off its entertainment businesses. Traders were more cautious in Hong Kong, where the Hang Seng fell 0.45 percent. Australia’s S&P/ASX 200 fell 0.28 percent.

Markets declined in mid-day trading in Europe with many traders expecting a near-term pullback after fresh multi-year highs. Germany’s DAX was off 0.15 percent, London’s FTSE 100 was off 0.06 percent, and the STOXX 50 index was off 0.31 percent.

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U.S. futures at 8:10 a.m.: DJIA: +0.12%, S&P 500: +0.26%, NASDAQ: +0.36%.

Here are three stories to keep an eye on:

1) Mixed Messages From the Fed: Investors have their eyes on two big central bank events on Wednesday. First, at 10:00 a.m. EST, Chairman Ben Bernanke will testify before the Joint Economic Committee of Congress on the outlook for the U.S. economy (check back later for coverage of the event). Second, at 2:00 p.m. EST, the minutes from the previous FOMC meeting will be released, allowing investors a chance to digest the thinking of Fed policymakers from three weeks ago. Unfortunately, a lot has changed since then.

The tone taken by many Fed governors over the past several weeks has been that the U.S. economic situation has improved enough to begin tapering purchases as early as this summer (some hawks have called for immediate tapering, but most accounts think that would be too abrupt). However, Bill Dudley, President of the New York Federal Reserve Bank, suggested on Tuesday that “we might adjust the pace of purchases up or down” because the economic situation is still largely uncertain, and material changes in either direction could affect decision-making.

2) Bank of Japan Leaves Policy Unchanged: Monetary policy will remain unchanged in Japan for the moment, as the nation’s central bank decided to make no changes to its program for the time being. Governor Haruhiko Kuroda has been under a bit of pressure from investors, particularly in the bond market, where yields have doubled since April when the most-recent program was announced.

As Shane Oliver, chief economist at AMP Capital in Sydney told CNBC: “The bond market is telling us that there is confusion about what BOJ policy means – does the rise in yields mean that the BOJ is not successfully keeping bond yields down or does it mean that bond investors think the BOJ will be successful in reflating the economy and are starting to price bonds accordingly?”

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3) QE Still Favored in England: Three out of nine members of the Bank of England’s Monetary Policy Committee — Mervyn King, Paul Fisher, and David Miles — voted to increase the size of the central bank’s asset-purchase program by 25 billion pounds ($38 billion) to a total of 400 billion pounds ($452.8 billion), according to recently-released minutes. The three musketeers were not enough to sway the the course of the program, as the remaining six members voted to keep the Bank Rate at 0.5 percent and then leave the asset-purchase program alone.

However, their continued support for an expanded program has not gone unnoticed. They have argued that, far from improving, economic conditions have actually deteriorated. In particular, they cite underwhelming GDP growth of just 0.3 percent in the first quarter. On the other side of the coin, inflation in England was recently as high as 2.8 percent.

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