Bold, unprecedented stimulus and the Nikkei reacted, really reacted. 6% isn’t a number you see often on index moves. I started looking around for some reaction and I didn’t find much. The Fed’s Lockhart says he’s “unsure how the new policy will affect the US”. Ok. If he’s unsure… I guess I can go home now. Yet one line after on my Dow Jones feed Mr. Lockhart says, “the Japan experience explains the Fed policy stance.” Maybe this isn’t contradictory, but something about these two quotes, rings false. The Fed’s been using Japan’s decade of deflation as an argument for QE x3. And now the BOJ is using QE to fight deflation and the Fed says they’re unsure? Strange bag of worms, I’d say.
What about the other indicators?
Gold is going nowhere, no change. The USD JPY pair is up 3%, that would seem normal. Adding to the confusion Mr. Draghi, brought down the European indexes, by saying very little. And for the US markets, after a nice little pull-back yesterday, they’re flat.
The markets took a nice 1% pop this morning in Europe and duly followed with a 0.5% rise in the S&P Futures. I initially thought it was the formalisation of a $30 billion rescue plan and a deficit target extension announced for Spain. Alas, it looks more like the result of a meeting (strategic dialogue) between China and the European Union. That’s news worth fading.
This is the 3rd strategic dialogue in 3 years. I didn’t look at the market reaction to the others, but I’d bet the market bounced with a short half-life.