Inflationary pressures continue to ease in Germany. The Bank of Japan maintained its soft monetary policy

October 31, 2023

At Monday’s stock market close, the Dow Jones Index (US30) increased by 1.58%, while the S&P 500 Index (US500) added 1.58%. The NASDAQ Technology Index (US100) closed positive by 1.16% yesterday. Stock indices rose moderately on Monday on the back of a falling dollar, as well as positive corporate news and mergers and acquisitions (M&A) deals. Pressure on the US dollar is also being exerted by the likelihood that the Federal Reserve will leave its monetary policy unchanged at Wednesday’s FOMC meeting. Markets are betting a zero probability that the FOMC will raise rates at its next meeting and an 18% probability of a 25 bps rate hike at its next meeting on December 12-13.

Western Digital shares are up more than 7% after the company reported better-than-expected first-quarter earnings and announced its intention to split into two public companies. Additionally, shares of Amazon.com (AMZN) closed higher by more than 3%, adding to last Friday’s 7% gain after Guotai Junan Securities raised the company’s price target to $162.80 per share.

The Dallas Fed’s US manufacturing activity index for October unexpectedly fell by 1.1 to minus 19.2, weaker than expectations for a rise to minus 16.0.

Bank of Canada (BoC) Governor Tiff Macklem urged elected officials to consider the inflationary implications of their spending plans as the Central Bank tries to cool price pressures. Macklem cited slower economic growth and higher interest rates as factors affecting future government budgets. Canadian Finance Minister Chrystia Freeland will deliver a financial report in the coming weeks.

Equity markets in Europe were mostly up on Monday. Germany’s DAX (DE40) rose by 0.20%, France’s CAC 40 (FR40) gained 0.44% yesterday, Spain’s IBEX 35 (ES35) added 1.07%, and the UK’s FTSE 100 (UK100) closed positive by 0.50%.

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The Eurozone Economic Confidence Index for October fell by 0.1 to 93.3, which was better than expectations of 93.0. German Q3 GDP declined by 0.1% QoQ, stronger than expectations of 0.2% QoQ. The German Consumer Price Index (EU harmonized) for October declined from 4.3% to 3.0% y/y, better than expectations of 3.3% y/y and the lowest inflation rate in 2 years.

ECB Governing Council representative Kazimir said yesterday that forecasts for ECB interest rate cuts in the first half of next year are completely misplaced, and the ECB will have to stay on the cusp over the next few quarters. In contrast, his counterpart, Simkus, believes that the ECB will not raise interest rates at its December meeting, saying that current restrictive levels are sufficient.

WTI crude oil prices fell more than 3% yesterday as Israeli military action in the Gaza Strip proceeded at a more cautious pace than expected, easing fears of a widening conflict in the Middle East. In addition, Iran’s foreign ministry said on Monday that Hamas has pledged to release non-Israeli hostages as soon as possible.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.95%, China’s FTSE China A50 (CHA50) added 0.35%, Hong Kong’s Hang Seng (HK50) was up by 0.04% on the day, and Australia’s ASX 200 (AU200) was negative 0.79% on Monday. On Tuesday, Asian stocks fell to near one-year lows amid disappointing Chinese manufacturing activity data, while the yen fell to 150 per dollar after the Bank of Japan changed its policy to control bond yields.

At its meeting, the BoJ left the short-term interest rate at minus 0.1% and said it would use the top end of the YCC’s 1% range as the reference limit for its market operations. The move reflects a slight shift to tight YCC policy and may signal some greater flexibility. The BoJ also said it will continue asset purchases and quantitative easing to stimulate the economy, citing continued uncertainty over rising inflation and deteriorating global economic conditions. The statement indicated that the Bank is trying to maintain a balance between supporting the Japanese economy, curbing further weakening of the yen, and simultaneously combating rising inflation. The BoJ also said it expects core consumer inflation to remain above the 2% target through fiscal 2024 and that risks to prices are skewed upward in fiscal 2023.

S&P 500 (F)(US500) 4,166.82 +49.45 (+1.20%)

Dow Jones (US30) 32,928.96 +511.37 (+1.58%)

DAX (DE40) 14,716.54 +29.13 (+0.20%)

FTSE 100 (UK100) 7,291.28 +36.11 (+0.50%)

USD Index 106.14 −0.42 (−0.40%)

News feed for 2023.10.31:

– Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
– Japan Industrial Production (m/m) at 01:50 (GMT+2);
– Japan Retail Sales (m/m) at 01:50 (GMT+2);
– China Manufacturing PMI (m/m) at 03:30 (GMT+2);
– China Non-Manufacturing PMI (m/m) at 03:30 (GMT+2);
– Japan BoJ Interest Rate Decision at 04:30 (GMT+2);
– Japan BoJ Monetary Policy Statement at 04:30 (GMT+2);
– Japan BoJ Press Conference at 08:30 (GMT+2);
– German Retail Sales (m/m) at 09:00 (GMT+2);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
– Eurozone GDP (q/q) at 12:00 (GMT+2);
– Canada GDP (m/m) at 14:30 (GMT+2);
– US Chicago PMI (m/m) at 15:45 (GMT+2);
– US CB Consumer Confidence (m/m) at 16:00 (GMT+2);
– New Zealand Unemployment Rate at 23:45 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Inflationary pressures continue to ease in Germany. The Bank of Japan maintained its soft monetary policy