Bank of Japan QE

Bank of Japan QESome Bank of Japan directors expressed concern over the expansion of the central bank’s action of quantitative easing since this can increase the risk that it will be perceived as financing government deficit. This was shown in the minutes of the meeting (October 31) which was publicized early this week.

Said concerns emerged after the BOJ surprised the market in October by spreading out its yearly debt purchases to 80 trillion from 50 trillion yen.

This was meant to accelerate the country’s struggling economy.

The move increased speculation that the central bank will opt for additional stimulus. It pushed the Japanese currency to low of seven years versus the US note last week.

Some economists argued that the swift downgrading of the yen aimed at helping Japanese exporters could be exaggerated.

The US dollar was down by 0.3 percent at 117.93 Japanese yen after it reached a seven-year peak of 118.98. The common currency slipped 0.06 percent to 147.02 Japanese yen after reaching 149.12 yen also last week.

The US dollar got a helping hand after the government modified the reading on third-quarter GDP to 3.9 percent. However, gains fell after the Conference Board reported its index on US consumer confidence which dropped all of a sudden to a five-month trough this month.

The euro increased 0.2 percent at $1.2470. It recovered from a low of $1.2358 early this month.

The US dollar index was down 0.26 percent at 87.922. This was after it almost reached a high of 88.440.

 

Traders Expected To Sit Tight Until the ECB Meeting After PBOC Surprise

Traders were greatly surprised by China last week as they are now focused on ECB forthcoming, as ratio increases that Mario Draghi will announce a new record setting package stimulating the currency to push the balance sheet of ECB to over $1 trillion euros. Global markets enjoyed a lift when the Chinese interest rates were cut and the comments given by Europe CB chief. The People’s Bank of China has also lowered its one year deposit rate from 3.0% to 2.75% in its effort to vitalize the economy. In the meantime, President of ECB Mario Draghi said that he would increase the pressure to liven Europe’s struggling economy. After about half an hour from the opening, the Dow Jones escalated at almost 1% setting a new record high of 17,866.00. As the USD surged to 88.36, the euro went down to trade at 1.2392.

For the first time in more than two years, China’s Peoples Bank has reduced interest rates that served as a strong signal that the power-to-be desires to step up support for the failing economy. As it was destiny, the cutting of rate was the expectation called for by Chinese leader on their monetary policy this week. A surprise as nobody was expecting the central bank to act so fast. Neither were most analysts or investors prepared for the announcement hence there were great gains for commodities, currencies and stocks sensitive to demand of China in the hours following the announcement.

It is enticing to gaze at the cut of rate using the simple GDP lens: by reducing the rates is tantamount that China is altering its policy towards a pro-growth footing as a conclusion. While there is truth to the statement; two decision aspects show it is not only more complicated but complicated but more interesting. Last Thursday, China showed figures of their factory output contracting for the first time in six months. A five-year low of 7.3% last quarter is a sign of the weakening economic growth.

Crude Oil Plunges to Lowest Level

crude oilWTI crude oil dropped to the lowest point in over four years after OPEC member-nations failed to commit output cuts prior to the meeting of the Organization of Petroleum Exporting Countries this week.

The countries of Mexico, Russia, Saudi Arabia, Mexico and Venezuela will conduct monitoring of crude prices on a quarterly basis. Initial talks in Vienna did not produce a common pledge to decrease.

Even said countries like Saudi Arabia are not amenable to any kind of reduction.

West Texas Intermediate for delivery in January of 2015 declined to $1.69 (2.2 percent) to $74.09 per barrel at the NY Mercantile Exchange. This was the lowest since September of 2010. Volume for all futures was 21 percent lower than the 100-day average.

Prices hardly moved following the release of inventory data made by the American Petroleum Institute. The API said that supply of US crude oil increased by 2.8 million barrels during the past week.

Brent for January gave up $1.35 (1.7 percent) to $78.33 per barrel on the European Exchange of the London-based ICE Futures.

Crude prices dipped significantly in 2014 due to the highest production of the United States in over 30 years.

There are indications that leading producers of OPEC are more interested in preserving market share than upholding prices which led to the plunge in prices.

OPEC is said to be thinking of exempting three nations from possible oil-production reduction. These are Iran, Iraq and Libya.

US oil futures recovered after GDP went up by 3.9 percent from the initial projection of 3.5 percent.

Number One Attraction

Only one event and one event alone will be the focus of energy traders this week and that is the forthcoming OPEC meeting. In the history of OPEC, more attention had been directed to these collective events over the past years. Like global stars, the names of OPEC Ministers were continuously printed and exposed in the headlines. According to a veteran of almost twenty years of the group’s meetings, these stars used to hold the realm when deciding production levels for oil.

Abdullah Bin Hamid Al Attiyah who is former Qatari Oil Minister stated that  a world that appears to be swimming in oil or drowning in oil contributed to a 30% reduction in prices since the middle part of June. It left the organization relying on non-members to buoy the market. The 12 OPEC members are scheduled to meet in Vienna on Nov. 27.

Traders worried about the commodity as crude oil gained 26 cents to trade at 78.77 whereas Brent oil stayed stable over the $80 level at 80.62 with the spread under $2.

OPEC members should be observed very closely this week for cues and comments on whether the group would cut output or maintain production of the initial estimates remain mixed after the huge decline of 30% decline in oil prices since the highs in July last year. Watching these cues, it appears that there will be good gains in oil on Thursday and Friday last week was buoyed by expectations of an accumulated 500,000 barrels per day worth of cut that would be an announcement expectations stand for a higher reading.