Surprise Bank of Japan Stimulus Sees Stock Market Bulls Stampede Higher

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Stock Market Trading

: 31 October 2014

Europe is set to open on firm footing today following strong sessions in the US and Asia.

After yesterday's yo-yo trading, it seems that the bulls have shaken off their post-QE nausea and taken up the mantle again.

The pickup in Q3 US GDP yesterday certainly stopped the bears in their tracks and some surprise easing from the Bank of Japan overnight has got the bulls ready to stampede out of the gates this morning.

Just as the Fed takes away the punch bowl, the BoJ has turned up with a crate of sake.

For Europe, attention now turns to the CPI Flash Estimate where we will get another reminder of how close the union is to going over the cliff into a deflationary spiral.

Consensus forecast is for a slight uptick from 0.3% to 0.4%.

However, the recent run of bad data, particularly from Germany which is the only thing keeping Europe aloft, seems to suggest otherwise.

This month German unemployment, factory orders, industrial production, trade balance, ZEW survey, services PMI, IFO survey, and the Flash CPI have all indicated weakness.

However, with the bulls on top once more, this is one of those figures where traders should be able to spin it in a positive light irrespective of how it comes out.

If it's below consensus then there's added pressure on Draghi to fire up those printing presses and if it beats expectations then the bulls will chalk it up to economic improvement.

The US economy expanded at an annual rate of 3.5% in the last quarter, surpassing estimates for 3.1% growth, and at the same time unemployment claims were at 14 year a low.

This shows that the post-tapering world is hanging on for now and, given that the actual reversal of QE is nowhere near in sight, all that extra cash has to go somewhere.

Investor sentiment was clearly boosted by the figures, with the Dow Jones rallying by 204 points to 17,190.

Stock Market Trading

: 30 October 2014

Stock market indices are set to open flat as traders try to decipher last night's Fed moves.

As was widely expected, the plug was pulled on QE.

However, there was no additional sweetener to keep the markets happy, just a reiteration of the 'considerable time' phrase.

The bulls were also put onto slightly awkward footing by the acknowledgement of improvements in the labour market.

Currency traders certainly thought this was a hawkish signal, with significant strength in the dollar across the board, but equity traders are still to make up their minds up about it.

Having rallied earlier in the session, the Dow Jones dropped sharply after the announcement but the commitment to keep interest rates low spurred a rebound towards the close.

The index finished unchanged at 16,987 as investors tried to figure out whether the US economy has enough velocity to sustain itself this time around.

Stock Market Trading

: 29 October 2014

European equities are set to start with gains this morning, tracking overnight momentum from the US and Asia.

Yesterday's US consumer confidence data surpassed estimates and kept investors optimistic regarding economic growth across the Atlantic.

Additionally, corporate results impressed again, overshadowing lower than predicted growth for house prices.

This saw the Dow Jones continue its two week rebound from the lows below 16,000, with the index gaining another 170 points to close at 17,008.

Interestingly, the usual apprehension before a Fed meeting seems to have been shrugged off even though the end of its quantitative easing program seems to be a dead cert.

Whilst the end has been widely telegraphed, it is the implicit 'deal' that the market thinks it has struck with the Fed where the risks lie.

In exchange for pulling the plug, markets are expecting to get something in return or they could throw another taper tantrum.

So, traders are getting bullish, positioning themselves long of the market in anticipation that the Fed will be extremely dovish with its forward guidance to prevent the bottom falling out of the market.

Hopefully they won't disappoint...

Stock Market Trading

: 28 October 2014

Equities in Europe are set to pare back some of yesterday's losses and start with modest gains.

There hasn't been anything particularly bullish on the newswires but the US and Asian sessions were pretty mixed and there's an assumption that if that was the best the bears could muster, then the path of least resistance must be higher.

There's some natural caution building ahead of this week's main event, the FOMC meeting, as the expectation is that the plug will be pulled on QE3, despite some US officials expressing concern over Europe's economic slowdown.

The logical view to hold is that the withdrawal of stimulus will be a negative for equities; however, the bulls are seeing a silver lining.

Whilst it's true that stock markets plunged when the Fed ended QE1 & QE2, the bulls are hoping that the FOMC will want to prevent a repeat by putting something extremely dovish in the statement to placate the urge to dump risky assets.

Either way, the general wait-and-see attitude amongst CFD trading investors encouraged a relatively quiet trading session for the Dow Jones, which added just 20 points to 16,836.

Encouragingly for the bulls, a dip in oil prices below the $80 level hardly had any effect on the index.

Stock Market Trading

: 27 October 2014

European stocks look set to start on firm footing this morning following the largely positive results from the Eurozone bank stress test.

Although 25 banks failed, half have already taken measures to shore up their capital and none of them were considered to pose any systemic risk.

However, there is always some concern over the methodology.

Just as the 2011 tests didn't consider sovereign defaults, the 2014 tests have sought fit not to test for the impact of deflation.

It remains to be seen whether this is a glaring oversight that will come back to bite in the future, but for now traders seem happy to put those issues to one side and continue the upward momentum.

Corporate earnings in the US continued to impress investors who in turn felt confident enough to push equity markets even higher.

This encouraged a strong finish to the best weekly rally since 2013 after the previous four weeks of steep decline.

What was interesting was the readiness with which markets shrugged off the early concerns regarding the spread of Ebola after a New York doctor tested positive for the disease following his return from West Africa.

By Jonathan Sudaria, 31 October 2014

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