This page has been archived and commenting is disabled.
Shocking Bank Of Japan Trick And QE Boosting Treat Sends Futures To Record High
Two days ago, when QE ended and knowing that the market is vastly overstimating the likelihood of a full-blown ECB public debt QE, we tweeted the following:
It's all up to the BOJ now
— zerohedge (@zerohedge) October 29, 2014
Little did we know how right we would be just 48 hours later.
Because as previously reported, the reason why this morning futures are about to surpass record highs is because while the rest of the world was sleeping, the BOJ stunned those few who were looking at Bloomberg screens with a decision to boost QE, announcing it would monetize JPY80 trillion in JGBs, up from the JPY60-70 trillion currently and expand the universe of eligible for monetization securities. A decision which will forever be known in FX folklore as the great Halloween Yen massacre.
In retrospect, the BOJ's announcement should have been anticipated. Recall that yesterday, the biggest non-story was the regurgitated headline that the Japanese Pension fund would boost its holdings of domestic and foreign stock from 12% to 25%, while slashing its Japan bond holdings from 60% to 35%, something that had been leaked previously. The full changes:
- Domestic stocks raised to 25% from 12%
- Japan bonds cut to 35% from 60%
- Overseas shares 25% from 12%
- Foreign debt 15% from 11%
But while Japan's eagerness to bet its retirees lifetime savings on GoPro had been well-known previously, it also meant that someone would have to step in and buy the hundreds of billions of JGBs the GPIF had to sell in what over the past year became the world's most illiquid bond market, often going for days without a single transaction.
That someone, a few hours ago, was revealed to be the Bank of Japan, which in addition to now clearly becoming the only buyer of only resort for Japanese bonds, has tipped its hands that it is going all in on pushing the Nikkei higher at all costs, even if it means crushing the domestic economy, something which even Keynesian "experts" say will be the outcome if the Yen continues to slide below 110 for the dollar.
So for all those wondering why futures are back to all time highs, here is the reason:
- ITALIAN SEPT. UNEMPLOYMENT RATE RISES TO 12.6%, MATCHING RECORD
No wait, sorry, that's reality - something that hasn't mattered to markets since 2008. Here is the reason, all thanks to CTRL-P:
- KURODA SAYS EASED TO MAINTAIN POSITIVE CHANGES IN EXPECTATIONS
- KURODA: TODAY’S DECISION SHOWS BOJ’S UNWAVERING DETERMINATION
In other words, several days after Larry Fink mysteriously visited Abe, the BOJ announced it would do everything in its power push the Nikkei into green for the year, which it did with its announcement overnight, and to truly crush the local population's buying power.
Kuroda also had some truly comedic one liners:
- KURODA: DON'T THINK EXIT FROM EASING WILL BE DIFFICULT
And now that Japan has gone all in on runaway inflation, we expect that Abe's reign of terror to be cut short as finally the people's anger at this Keynesian madman on top of it all will finally explode.
The good news in all of this is that the desperation is increasingly palpable, and since Japan is about to go pro in deflation exporting to the US and mostly Europe, expect even more violent reprisals from the world's other central banks and so on until finally it is only central banks left trading with each other. Much like today.
In the meantime, here is what is going on:
- S&P 500 futures up 1.2% to 2011.6
- Stoxx 600 up 1.4% to 335.5
- US 10Yr yield up 1bps to 2.32%
- German 10Yr yield down 1bps to 0.84%
- MSCI Asia Pacific up 1.3% to 142.2
And the punchline:
- Gold spot down 2.2% to $1172.3/oz
Because in the new normal diluting your currency even more is even more negative for undilutable currencies.
Some more details on what the latest massive central bank intervention did to what only laughably can one now call "markets" via BBG: European shares rise with the bank and financial services sectors outperforming and media, retail underperforming. Asian stocks rise led by Nikkei as Bank of Japan’s Kuroda raises stimulus to another record. Euro-area inflation data matched forecasts. Companies including RBS, WPP, IAG, Banco Popular, BNP, AB-InBev released results. German Xetra trading halted by computer malfunction. The French and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. French 10yr bond yields fall; Irish yields decline. Commodities decline, with silver, gold underperforming and natural gas outperforming.
Bulletin headline from Bloomberg and RanSquawk
- The BoJ takes centre stage overnight after unexpectedly increasing their QQE programme by JPY 10trl, sending the Nikkei 225 surging higher by 4.8% to its highest level since 2007, the e-mini S&P through 2,000, USD/JPY above 111.00 to its highest level since Jan’08 and spot gold to its lowest level since 2010.
- ECB’s Nowotny lifts Bunds after deviating from his usual hawkish script by adopting a never say never approach to an ECB QE programme.
- Looking ahead, attention turns towards US personal income & spending, Chicago PMI and Univ. of Michigan confidence.
- Treasuries extend second week of losses after Fed ends QE as Bank of Japan expands what was already an unprecedentedly large monetary-stimulus program, boosting stocks and sending the yen tumbling.
- BOJ, which also cut its forecasts for inflation and growth, voted to raise annual target for enlarging the monetary base to JPY80t ($724b), up from JPY60t-JBP70t
- Japan’s $1.1t Government Pension Investment Fund announced it will put half its holdings in local and foreign stocks, start investing in alternative assets and cut its domestic bond allocations to 35% of assets from 60%
- Euro-area inflation rose 0.4% in October, up from a five-year low in October and in line with median estimate in Bloomberg survey; a separate report showed unemployment holding at 11.5% in September
- Russia’s central bank increased its key interest rate to 9.5% from 8%, more than forecast, bringing it to the highest level since it was introduced 13 months ago to halt a currency run that’s stoking inflation
- Chinese bank deposits dropped following a crackdown on lenders manipulating their numbers and “illicit” means of attracting money, threatening to weigh on credit growth and hinder efforts to reignite the economy
- Hong Kong protesters said they may attempt to visit Beijing next week to seek talks with China’s top leaders while the nation plays host to a global summit
- Lloyds Banking Group Plc may still register Scottish Widows Plc, its 200-year-old Scottish insurance division, in England even after voter rejected independence in a referendum last month, said two people with direct knowledge of the deliberations
- Critics and allies agree Israel PM Netanyahu has much to gain on home front by defying Obama; the latest falling-out was sparked by Israel’s plan to build more than 1,000 homes for Jewish residents in areas of Jerusalem the Palestinians claim for their hoped-for state
- Sovereign yields mostly lower. Asian stocks surge, led by Nikkei +4.8% to highest in seven years. European stocks, U.S. equity-index futures gain. Brent crude lower, copper -1.1%, gold -2.2%
US Event Calendar
- 8:30am: Employment Cost Index, 3Q, est. 0.5% (prior 0.7%)
- 8:30am: Personal Income, Sept., est. 0.3% (prior 0.3%)
- Personal Spending, Sept., est. 0.1% (prior 0.5%)
- PCE Deflator m/m, Sept., est. 0.1% (prior 0.0%); PCE Deflator y/y, Sept., est. 1.5% (prior 1.5%)
- PCE Core m/m, Sept., est. 0.1% (prior 0.1%); PCE Core y/y, Sept., est. 1.5% (prior 1.5%)
- 9:00am: ISM Milwaukee, Oct., est. 60 (prior 63.18)
- 9:45am: MNI Chicago Business Barometer (purchasing managers), Oct., est. 60 (prior 60.5)
- 9:55am: UofMich. Consumer Sentiment Index, Oct. final, est.86.4 (prior 86.4)
ASIA
JGBs trade up 6 ticks at 146.68, after paring their earlier sharp gains as Japan's GPIF panel approved cutting JGB allocation to 35%, according to sources. Prices touched a fresh record high after the BoJ unexpectedly increased its JGB purchases by JPY 30trl per year. The Nikkei 225 closed up 4.8%, at its highest level since 2007, after the BoJ unexpectedly increased their QQE program. Furthermore, the index was also supported by reports that Japan's GPIF panel approved raising domestic stock holding to 25%, according to government sources. The Hang Seng closed up 1.3% after opening at its best levels since Sep. 25, while the Shanghai Comp closed up 1.2%, both indices bolstered by several upbeat corporate earnings.
FIXED INCOME & EQUITIES
The aforementioned action taken by the GPIF very much set the tone for the European open, with cash futures opening firmly in the green (Eurostoxx 50 currently +1.7%). On a sector specific basis, financial names lead the way for Europe following strong earnings reports from RBS (+3.4%) and BNP (+3.9%). However, gains for the sector have been capped following further downward momentum for Italian banks after Moody’s have initiated a review for a potential downgrade on various peripheral banks.
Despite opening lower, the downside for Bunds was short-lived following some comments from ECB’s Nowotny who went against the grain of his usual hawkish rhetoric, more specifically, the central banker said never say never to QE in Eurozone, while refusing to rule out expanding the purchasing programme to include more corporate bonds. This saw a gradual turnaround in Bunds as they broke above 151.00, with further positive sentiment provided by, a weak German retail sales report and the fact that the GPIF have increased ratio of foreign bonds to 15% vs. Prev.11%.
FX
The main focus for FX markets today has been the broad-based USD strength which has dominated a bulk of the price action in FX markets and pushed JPY lower against its major counterparts with USD/JPY breaking above 111.00 to reach its highest level since Jan’08. Elsewhere, NZD saw some strength overnight after Fonterra announced that China has lifted its temporary suspension on base powder exports which has been in place since August 2013. Despite initially, being out-muscled by the greenback, the RUB clawed back some ground after the Russian central bank unexpectedly hiked rates by 150bps, with the market looking for just a 50bps cut. However, the move lower in USD/RUB was capped by the bank not abolishing rule-based interventions.
COMMODITIES
Movements in the USD-index have dictated the state of play for the commodity complex, with spot gold falling to its lowest level since 2010, while both WTI and Brent crude futures reside in the red. For base metals, copper is poised for its first monthly advance since July ahead of tomorrow’s Chinese official PMI release with the red metal benefitting from improved Asian investor appetite. More specifically for energy prices, Brent crude is heading for a sixth consecutive loss which would be the longest decline since 2002 as global supplies and the stronger USD continue to weigh on investor sentiment.
»
- 20475 reads
- Printer-friendly version
- Send to friend
- advertisements -
Borrowing in the wind...
How many yens must insane Abe drop down
Before he could pull down Japan?
Yes, 'n' how much currencies must Kuroda assail
Before Nippon sleeps in the sand?
Yes, 'n' how many times must the QE boost fly
Before they're forever banned?
The answer, my friend, is borrowin' in the wind
The answer is borrowin' in the wind
... with apologies to Robert Allen Zimmerman
Just when I think the NASDAQ will only rise about 30 points, it jumps 70.....
How is it one can not be Bullish enough????
in all honesty, this can only be seen as CB scorched earth policy. weimarization, globally
Why do I get an image of Japanese bankers, all wearing that headband with the big red dot on it, getting their pep-talk before take-off?
Alfred Hitchcock Presents, BOJ central planning follies. In Hilton Head watching morning D11 cable channel.. This cluster fuck stimulus is another calamity. https://www.boj.or.jp/en/
The comments here continually claim that Japan is "sacrificing" itself because of a stereotype that they are exceptionally "docile".
Actually, they are being used, and not because they are exceptionally "docile".
If Japan were militarily occupied by Russia, with a government set up by Russia, and had been so for 50 years
people would have no difficulty understanding that Japan's foreign relations and economic policies were being directed by the occupying power in collusion with its dependent collaborators.
who sets the parameters of military policy for Japan?
http://www.globalresearch.ca/americas-military-pivot-to-asia-obama-wants...
http://www.globalresearch.ca/dangerous-crossroads-us-japan-talks-escalat...
who sets economic policy for Japan?
… money was flowing into Japan at an unprecedented rate. Prices were beginning to move upwards and new money was flowing into the stock market at an unprecedented rate, causing the Nikkei to rise faster than market fundamentals might dictate.
By the mid-1980s, the Japanese Central Bank decided to slow the economy down by raising interest rates. This action would dampen any inflationary tendencies and prevent a stock market bubble from forming. However, as logical as this solution was, it was to be opposed by the US government and never implemented.
At the time, most of the Japanese money was being invested in US Treasuries, as the Reagan administration was borrowing heavily to fund its military buildup. During Reagan’s presidency, US government debt tripled from one to four trillion dollars, the greatest percentage increase of US debt in history.
The US knew that any rise in Japanese interest rates would slow the flow of Japanese funds to the US. Japanese investors would much prefer to keep their money in Japan if interest rates were high enough.
But during this time, the Reagan administration needed a constant flow of foreign dollars to pay for its military expenditures and when it heard about the plans of the Japanese Central Bank, it did more than register a protest. It threatened Japan with economic sanctions.
If the Japanese went ahead with their interest rate increase, the US threatened to retaliate with import tariffs on Japanese automobiles, electronics, and consumer goods. This threat was real enough to cause the Japanese to cancel their interest rate increase.
As a result, the US military buildup continued and the price of Japanese real estate and stocks, fueled by excessive amounts of liquidity, exploded upwards. Japanese real estate prices increased 70 times over and stock prices increased over 100-fold, with the Nikkei reaching a market top at 38,992 in January 1990.
As with all speculative bubbles, the Nikkei collapsed - and the collapse of the Nikkei in 1990 unleashed deflationary forces not seen since the Great Depression of the 1930s. Prices of stocks and real estate in Japan began a long and steep multi-year descent.
Commercial real estate lost 80% of its value in the next decade and the Nikkei fell from 38,992 in 1990 to 8,237 in 2003. Deflationary cycles are long and protracted and if not stopped will become deflationary depressions, an economic phenomenon for which there are no ready answers...
http://www.321gold.com/editorials/schoon/schoon121912.html
Stacking....I'm just another fool who distrust fiat. Bars, just for something else. Going boating before too cold.
SUPRISE!!!!
More same.
Whats next. Ya me aburro.
Why are ten year JGBs yielding less than 0.50%? Shouldn't rates be rising?
Something tells me that Rickards may be late in his call for 15 months until QEInf
QEn+1
CBs are weapons of war.
One hopes putin wont nuke the fed.
and gold miners gap down 5%
Debasement has just been debased further.
Those Japanese do like to push envelope.
Alex Kerr's book Of Dogs and Demons is required reading concerning Japan, Ministry of Finance, Bank of Japan,
And Kerr's book is about Japan up to 2005 only.
Frightening stuff.
According to Natixis FICC Research:
http://personal.crocodoc.com/SU8Hy8u
In reality, central banks control only the prices of the assets they buy directly
When a central bank buys an asset directly (often government bonds), it drives up the price of this asset, the demand for which increases.
But the prices of the other asset classes increase only if the economic agents that have sold the first assets to the central bank use the money received to buy these other asset classes.
This transmission of increases in asset prices to all asset classes is therefore unstable, since it depends on the behaviour of investors and savers. Since 2012, we have seen that central banks’ purchases first led asset sellers to buy risky assets (equities, corporate bonds), whose prices rose. But in the recent period, the rise in risk aversion has turned them away from risky assets, whose prices have fallen, and they have invested the money received from the central bank in risk-free assets.
There is therefore no stable monetary policy "risk channel"; the only asset prices that are controlled by central banks in the longer run are those of the assets that central banks buy directly. This could in the future push central banks to buy riskier assets if they want to change their prices in a stable manner.
Central banks’ asset purchases have a direct impact on the prices of these assets
When a central bank buys financial assets, it increases demand for these assets, which directly drives up their prices.
This occurred with purchases of Treasuries and ABS in the United States (Charts 1A and B) and with government bonds in the United Kingdom and Japan (Charts 2A and B), and with the announcement of covered bond purchases in the euro zone (Chart 3).
But the impact of the central bank’s asset purchases on other asset classes is uncertain
- The central bank buys assets (especially government bonds, Charts 1A, 2A and B above).
- It pays by creating money (Chart 4).
- The economic agents that sell assets to the central bank use this money to buy other assets. But they have a free choice: a quantitative easing policy will drive up the prices of the assets that economic agents choose to buy, not the prices of the others.
- We also saw from 2011-2012 until the spring of 2014:
• A tightening of credit spreads (Charts 5A and B, 6A and B);
• A rise in the stock market (Charts 7A and B, 8A and B).
- But investors’ risk aversion has risen since the spring of 2014, (Charts 9A and B): they no longer buy risky assets and the prices of these assets have corrected downwards, whereas long-term interest rates on risk-free government bonds have fallen sharply (Chart 3 above, Charts 10A and B).
Conclusion: The risk channel is not robust
The transmission of the rise in the prices of the assets the central bank buys directly to a rise in the prices of other assets is therefore unstable, since it depends on investors’ attitude and their risk aversion.
The "risk channel" is the mechanism through which the central bank’s monetary creation drives down risk premia.
We have seen that this mechanism is unstable: it functions only if economic agents use the money created by the central bank, in exchange for purchases of risk-free assets, to buy risky assets.
If their risk aversion rises, this mechanism disappears - and so does the risk channel. In that case, the only remaining possibility for the central bank is to buy risky assets directly if it wants to drive down their prices.