Quantitative Easing In Japan

The markets are sharply higher in early trading, following a better than expected ISM Services report. Of course, Asian markets were higher overnight, and Europe was up this morning, so investors were already in a buying mood before the economic report came out.

The September ISM Services Index came in at 53.2 vs. expectations for 51.8. That was the only real news this morning, as corporate data is relatively light.

There was also some overseas news, as the Bank of Japan too further steps to boost liquidity in its country. The BoJ reduced interest rates (which isn't easy when rates were already 0.1%) and created a 5 trillion yen fund to boost liquidity via bond and asset backed securities purchases.

Japan really needs to halt the rise in the Yen (see chart below), which makes their exports more expensive in the global market. You can see that after that initial drop in the Yen when the central bank intervened in the markets, it has since moved right back up near its highs. We will have to see if these additional monetary steps can achieve their desired effect.

In Australia, the reserve bank left its main interest rate unchanged at 4.5%, halting what had been a series of rate hikes.

The dollar is lower again, which is boosting commodities. Oil is all the way up to $82.20, and pretty soon we are going to start hearing complaints about the high prices from industries that use oil. Gold is also at new highs above $1331, ditto for silver.

The 10-year yield is flat near 2.47%; and the VIX is moving sharply lower this morning, down -6% to 22.06.

Trading comment: Yesterday I mentioned that dip buyers could emerge quickly, and it looks like that is exactly what we are seeing. The S&P 500 briefly touched the 1131 level yesterday, which has been acting as support lately. That level held once again, and this morning the SPX zoomed right back up to the 1150 resistance area. Currently, the SPX has broken above that resistance, and is trading at 1155. If this level holds, it will be a new breakout, although the SPX did briefly trade at 1157 on the morning of 9/30. So that is probably the key level to watch.

We are now getting into earnings season, which will surely add volatility to individual stocks reporting earnings. Yesterday Mosaic (MOS) reported mixed results, but its stock is up +3.7% this morning.

long MOS