A Look At Friday’s Market Events

A Look At Friday’s Market Events

$ABBV, $MCO, $BUD, $CBOE, $CVS, $CVX, $XOM,

The European Central Bank (ECB) had its turn, the People’s Bank of China (PBOC) had its turn; and the US Fed had its turn Wednesday in the central bank spotlight.

Friday central bank attention will turn to the Bank of Japan (BOJ), which will make its latest policy intentions known in conjunction with a bi-annual update on its economic growth and inflation projections.

I. Bank of Japan Policy Decision expected at 12:00 Midnight EDT on 30 October

Why it is important

1. Press reports point to the likelihood of the BOJ downgrading its economic growth and inflation projections for the current F-Y with its bi-annual update at this meeting. If so, there will be a market assumption that a downgraded assessment will be/should be accompanied by increased stimulus.
2. Holding the policy line so to speak would generally be regarded as a negative market surprise given the weakening economic activity in regional economies
   The policy decision will have a direct impact on the Yen, which has been a major funding currency for carry trades
   A dovish position that features more stimulus could lead to further weakening of the Yen, whereas, the Yen could strengthen on the absence of new stimulus measures
3. Added stimulus, if provided, is expected to revolve around increased asset purchases Vs an actual cut in policy rates
4. The Nikkei  has rallied 11.8% over the last month, helped in part by speculation that increased asset purchases would skew in favor of increased purchases of ETF (exchange-traded) equity funds

A close look

1. The BOJ has held the uncollateralized overnight call rate between 0.00% and 0.57% since September 1995. It has been at 0.10% since December 2008.
2. A vote on bolstering the asset purchase program is expected to be close as some BOJ officials have been worried about the impact on Japanese households of an even weaker Yen, which the market would expect with additional accommodation

What is in play?

Japan ETFs

1. iShares MSCI Japan (EWJ)
2. Japan Hedged Equity Fund (DXJ)
3. MSCI Japan Hedged Equity Fund (DBJP)
4. Currency Hedged MSCI Japan ETF (HEWJ)

Regional ETFs

1. iShares China Large-Cap (FXI)
2. iShares MSCI South Korea Capped ETF (EWY)
3. iShares MSCI Taiwan ETF (EWT)
4. MSCI Australia ETF (EWA)
5. iShares MSCI Singapore ETF (EWS)
6. MSCI All Country Asia ex Japan Index Fund (AAXJ)

Currencies

1. USD/JPY
2. EUR/JPY

Japanese Government Bonds

US Treasuries

S&P Futures

II. Friday’s US Economic Reports (in the morning)

1. September Personal Income (consensus 0.2%)
2. Personal Spending (expected 0.2%),
3. Core PCE Prices (consensus 0.1%)
4. Q-3 Employment Cost Index (consensus 0.5%)
5. October Chicago PMI (consensus 49.0)
6. Final reading of the Michigan Sentiment Index (MSI) for October (expected 92.6).

III. Friday before the open, these companies will report earnings to the market: ABBV, MCO, BUD, CBOE, CVS, CVX, XOM+++

Stay tuned…

HeffX-LTN

Paul Ebeling

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