Response So Far to Global Central Bank Actions Is Ominous!
Thursday, September 20, 9:25 a.m. Japan’s central bank was the latest to announce additional monetary stimulus measures. Tuesday night the Bank of Japan surprised markets by increasing the size of its asset purchases program by 10 trillion yen ($126.7 billion) to 80 trillion yen. The Japanese Nikkei was up 1.2% Tuesday night to a new [...]

Thursday, September 20, 9:25 a.m.

Japan’s central bank was the latest to announce additional monetary stimulus measures. Tuesday night the Bank of Japan surprised markets by increasing the size of its asset purchases program by 10 trillion yen ($126.7 billion) to 80 trillion yen.

The Japanese Nikkei was up 1.2% Tuesday night to a new rally high in reaction to the announcement. But so far it was a one-day rally, with no follow through. The Nikkei plunged back down 1.6% last night. Its problem was last night’s report that Japan’s exports fell again and its trade deficit widened again. Japan’s exports to its largest trading partner, China, declined 9.9%, while exports to the euro-zone plunged 22%.

The Bank of Japan’s new stimulus effort also had most Asian stocks up Tuesday night in reaction. But they also plunged last night with no follow-through, in reaction to the report last night that like Japan, China’s economy also continues to slow much more than previously expected.

China’s economic slowdown looked awful in August when its HSBC PMI Index fell to 47.6, below the recessionary mark of 50 for its 10th straight month of contraction. Last night’s report was that the contraction continued in September, the Index coming in at 47.8.

In reaction, after rallying Tuesday night in response to the Bank of Japan’s additional stimulus announcement, China’s stock market plunged back down 2.1% last night, to another new bear market low, now down 41% since its brief new bull market after the 2008 financial crisis was aborted in mid-2009. 

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Meanwhile, in Europe, markets had a big 2-day spike-up rally in initial reaction to the ECB’s surprise ‘whatever it takes to save the euro” decision on open-ended bond buying. But there was no follow through until a one-day spike up last Friday in reaction to the Fed’s QE3 decision in the U.S. And now no follow through to that this week.

And in the U.S., the market is down so far this week, no follow through to the U.S. market’s initial 2-day spike-up reaction to the Fed’s decision last week.

Is it that the global central bank actions had been hoped for, anticipated, and factored into markets in the big rally from the June low, and now it’s going to be a case of buy on the rumor and sell on the fact?

Or is it that with the focus on hoped-for action by central banks having been satisfied, that markets will return to focusing on the normal driving forces of markets, the direction of economies and earnings?

If it’s the latter the lack of follow through to the central bank efforts could be ominous, since there are no signs of economic or earnings improvements in Asia or Europe, as indicated by the reports last night from China and Japan.   

And in Europe this morning the Markit Flash Eurozone PMI report was that it plunged from 46.3 in August to 45.9 so far in September, a more than 3-year low. Markit’s Chief Economist Chris Williamson said, “We had hoped the news regarding the ECB’s intervention to alleviate the debt crisis would have lifted business confidence, but instead sentiment appears to have take a turn for the worse as companies adjust to weaker demand.” 

A potential worry is that if economies and earnings continue to deteriorate and central banks have already fired off their most aggressive ammunition, what would investors have as hopes for rescue? Those thoughts could cut quickly into current bullish ‘no fear’ investor sentiment.

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Subscribers to Street Smart Report: The new issue of the newsletter is in the subscribers’ area of the Street Smart Report website from yesterday.

To read my weekend newspaper column click here: Enough With The Fed’s Transparency Already! September 14, 2012.

Yesterday in the U.S. Market.

Another low volatility day with the Dow trading in a narrow range of just 70 points from low to high. The Dow was up 65 points mid-day but sold off some in the afternoon, with the decline accelerating in the final minutes. It was interesting that the program trading firms (the major banks) didn’t come in this time with buy programs when the bottom started to drop out in those final minutes, just letting it go, so that the Dow closed up only 13 points.

The Dow closed up 13 points, or 0.1%. The S&P 500 closed up 0.1%. The NYSE Composite closed up 0.1%. The Nasdaq closed up 0.1%. The Nasdaq 100 closed up 0.2%. The Russell 2000 closed down 0.1%. The DJ Transportation Avg. closed up 0.4%. The DJ Utilities Avg closed up 0.2%.

Gold closed down $1 an ounce at $1,770 an ounce.

Oil plunged again, down $3.36 a barrel to $91.93 a barrel.

The U.S. dollar etf UUP closed down 0.3%.

The U.S. Treasury bond etf TLT closed up 0.7%.

Yesterday in European Markets.

European markets closed up some yesterday after two straight down days Monday and Tuesday. The London FTSE closed up 0.3%. The German DAX closed up 0.6%. And France’s CAC closed up 0.5%.

Asian Markets plunged last night.

The Asia Dow closed down 1.4%.

Among individual markets last night:

Australia closed down 0.5%. China closed down 2.1%. Hong Kong closed down 1.2%. India closed down 0.8%. Indonesia closed down 0.6%. Japan closed down 1.6%. Malaysia closed down 1.1%. South Korea closed down 1.0%. Singapore closed down 0.4%. Taiwan closed down 0.7%. Thailand closed down 0.2%.

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Markets This Morning:

European markets are back down again this morning. The London FTSE is down 0.8%. The German DAX is down 0.6%. France’s CAC is down 0.9%. Spain is down 1.4%.

Oil is down $.27 barrel at $91.71

Gold is down $4 an ounce at $1,767.

This Morning in the U.S. Market:

This week is an average week for potential market-moving economic reports. They include the NY State Mfg Index, Housing Starts, Existing Home Sales, etc. To see the full list click here, and look at the left side of the page it takes you to. The quarter’s quadruple-witching expirations also take place on Friday.

Monday’s report was that the Fed’s Empire State (NY) Mfg Index unexpectedly plunged from negative 5.9 in August to negative 10.4 in September, its weakest level in two years. The consensus forecast was for an improvement to even at 0.0. The sub-index of new orders fell to negative 14.9 in September.

Tuesday’s report was that the NAHB’s Housing Market Index, measuring the optimism of home-builders, rose in September for the 5th straight month, gaining 3 points to 40, its highest level in six-years, getting closer to the 50 level that indicates ‘good’ conditions. It was below 20 as recently as last November.

Yesterday’s reports were that New Housing Starts at an annualized rate of 750,000 were up 2.3% in August over July, but only because the previous report for July of 746,000 was revised down to 733,000. So although more than the revised total for July, 750,000 starts in August were well short of the consensus forecast for 775,000. But Existing Home Sales were up 7.8% in August to 4.82 million, from July’s 4.47 million, better than the consensus forecast of 4.6 million.

This morning’s report was that new weekly unemployment claims fell by 3,000 last week to 382,000, not quite as much as forecasts of a decline to 375,000. The 4-week m.a. rose slightly by 2,000 to 377,750.

Still to come are the Phila Fed Index, and Leading Economic Indicators, both to be released at 10 a.m.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 50 points or so in the early going.

Subscribers to Street Smart Report: The new issue of the newsletter is in the subscribers’ area of the Street Smart Report website from yesterday.

To read my weekend newspaper column click here: Enough With The Fed’s Transparency Already! September 14, 2012.

I’ll be back with the next regular blog post on Saturday morning, as usual later than on the weekdays, probably around 11:00 a.m.

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