The Bank of Japan’s (BOJ) deputy governor Masayoshi Amamiya has recently reiterated his negative stance towards central bank-issued digital currencies (CBDC), the New York Times reports Oct. 20. He elaborated […]
October has come and gone, and the market rally goes on and on. Numerous observers and pundits have warned of a crash or strong correction, given the length of the rally and the fundamentals of the economy, which have been noted in earlier Newsletters. The FANGs and Microsoft seem not to be influenced by any disturbing geo-political news. The Fed will probably announce another rate hike in December and possibly three more in 2018 in addition to QT at 10 billion a month.
Central banks are moving towards the ‘QE exit’. The US Federal Reserve (the Fed) this month began reducing the total size of its asset holdings bought under successive rounds of quantitative easing (QE). The European Central Bank (ECB) has just announced a planned reduction in the value of its monthly asset purchases. And the Bank of Japan (BoJ) has been quietly reducing the pace of asset purchases since it began targeting bond yields.
For many years in the last two decades the Japanese equity market has been taken as a textbook case of secular bear market. Since the historical high of 1989 the Nikkei 225 stock index of Japan has been subdued by a prolonged downtrend that hit its lowest low in 2009 after losing about 80% from the high. Intermediate rallies had developed meanwhile, some of them were consistent, like the four years recovery started in 2003, but the although considerable +130% that followed did not reverse the secular trend that prevailed again thereafter whit a new deep fall.
Should the Fed continue with two more interest rate hikes in 2017, many commentators are of the opinion that the US will have a recession in 2018. The Fed`s intention to trim its balance sheet, if put into practice, will mean turmoil in the bond market as the Treasury will have to issue more bonds to cover the deficit of $670B with the national debt currently at $19.96T. The Fed will probably end up having to buy some of the new debt, thereby foiling its efforts at rebalancing its balance. October is at present the most likely month for a stock market correction or crash according to some observers.
Japan’s consumer prices fell in September for the seventh straight month, data showed Friday, heaping more pressure on the central bank to push back its inflation target deadline, the government announced Friday. The disappointing data came as the world’s third largest economy struggles to kick-start growth and conquer a long battle against deflation.
In September, the main focus was once again the central banks, the ECB first of all, then the Bank of Japan and the Fed. Expectations were high in all three cases. To announce additional monetary easing in the first two, and guidance on anticipations and credibility in the third. The first two disappointed the market, announcing measures that fell well short of investor anticipations. Already in July, the BoJ opted to keep things as they stood even though a large proportion of investors expected to see further monetary easing. The Fed, for its part, struggled to overcome internal divisions and look beyond a month-by-month horizon, at the risk of making mistakes in its growth projections and damaging its credibility.