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Wednesday, September 21, 2016
Markets rise prior to the FOMC meeting summary
Dow gained 81, advancers over decliners almost 4-1 & NAZ added 29. The MLP index rose 3+ to the 305s (still stuck in its sideways trading zone for months) & the REIT index was fractionally lower to the 349s. Junk bond funds crawled higher & Treasuries were a tad lower. Oil went up (see below) & gold is now up 11 on the news from Bank of Japan (see below).
The Bank of Japan shifted the focus of its monetary stimulus
from expanding the money supply to controlling interest rates,
which some economists deemed as further evidence that BOJ policy had
reached the limits of its effectiveness. The central bank said it would adjust the volume of its asset purchases, the core of its
framework until now, as necessary in the short term to control bond
yields, while keeping it at about ¥80T ($780B)
annually over the long term. The BOJ also scrapped a target for the
average maturity of its holdings of gov bonds. The changes will help the BOJ manage the impact of its purchases &
negative interest rates on Japanese banks, whose profits have been
squeezed by a narrowing of short-term & long-term yields. Governor
Haruhiko Kuroda & the policy board kept that negative rate, imposed on
a share of bank reserves, unchanged at minus 0.1%. Kuroda said the BOJ hadn't reached the limits of its bond purchases, & that the new measures strengthened the previous framework instead of
scrapping it. An excessive flattening of the yield curve could harm the
economy, he said. "As for the amount of
government bond purchases, it could increase or decrease, as it relates
to the economy, prices and in particular the financial markets," he added.
Oil traded near $45 a barrel after Algeria said OPEC may turn its
informal talks next week into a formal session & weekly industry data
showed US crude inventories declined. Nov futures rose by
as much as 3.9%. OPEC ministers can transform the
gathering into an extraordinary meeting since they'll all be present,
Algerian Energy Minister Noureddine Bouterfa said.
Supply needs to be cut by 1M barrels a day to rebalance the
market & stabilize prices, he said. US crude stockpiles dropped 7.5M barrels last week, the American Petroleum Institute was said
to report.
Oil
has fluctuated since its rally in Aug on speculation OPEC & Russia will agree on ways to stabilize
the market at the meeting. While Venezuelan President Nicolas Maduro
said members are close to a deal, most analysts said an agreement to limit production is unlikely. A deal to freeze output was proposed in Feb but a meeting in Apr ended with no final accord.
China stocks rose slightly, aided by strength in
property & financial stocks, although the general mood remained
cautious. The market was also underpinned by surge in major steelmakers as
investors bet on the next target of gov-led restructuring. In Asia, sentiment generally got a lift from the Bank of Japan's
decision to overhaul its policy framework as it ramped up efforts to
revive growth & stoke inflation. Traders were also looking ahead to the Federal Reserve
policy review later in the day, with focus on any clues on the timing of
the next rate hike. The blue-chip CSI300 index rose 0.3%, to 3266, while
the Shanghai Composite Index gained 0.1% to 3025. China's venture capital stocks also surged, after China
published rules to promote healthy development of the industry.
Traders are anxiously waiting for Janet to give her report on the FOMC meeting. Gold is having a good day, negative bets on what Janet will have to say later today.
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