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The BoJ chose to leave their quantitative and qualitative easing (QQE) policy on hold at their meeting today – disappointing those calling for an increase. Asian markets were already having a fairly negative day ahead of the BoJ meeting, but failure for the BoJ to ease further meant the markets sold off further.
October and the Halloween Indicator
Despite markets coming off a bit this week, most markets saw a strong October after they recovered from the big sell off seen in August and September. The big miss in the US non-farm payrolls at the start of October helped set off an equity rally as it appeared that major central banks were likely to keep rates on hold or step up quantitative easing.
Major indices October performance:
- Asia: Nikkei +8.9%, Hang Seng +9.0%, Shanghai Composite +10.7%, ASX +4.0%
- Europe: FTSE +5.5%, DAX 11.8%, CAC 9.7%, IBEX 8.8%, MIB 5.4%
- US: Dow Jones +9.0%, S&P 500 +8.8%, NASDAQ +9.8%
The other interesting point of note is Massey University’s Ben Jacobsen has found strong evidence for the existence of a ‘Halloween Indicator’, whereby stock markets deliver the bulk of their gains between 31 October and 1 May. He analysed the historical performance of 108 countries’ equity markets as far back as data was available. Over the past 50 years, the S&P 500 has gained an average 6.6% between those months, while its average gain from 1 May to 31 October has been only 0.8%. Given the strong October seen in most markets in the wake of the Black Monday-related selloff, odds do seem to be pointing to it holding again. No doubt that stepped up easing by the Bank of Japan and the European Central Bank, and a delayed rate hike by the Fed would be key to supporting recent gains.
AUD and NZD
After taking quite a beating this week, the Aussie and Kiwi both saw a bit of a bounce as local data came in better than expected. The Kiwi dollar saw a bit of milk-related bounce as China’s announcement of the two-child policy fuelled speculation that that there would be increased demand for milk powder. The October ANZ Activity Outlook and Business Confidence both saw marked improvements from the previous month, which helped boost the Kiwi in late-morning trade.
In Australia, the better than expected increase in private sector credit growth (+6.7% year-on-year compared to expectations for +6.3% year-on-year) and the strong jump in quarterly PPI (+1.7% year-on-year compared to the previous +1.1% year-on-year) boosted the Aussie dollar. This will support the opinion of the majority of economists who are predicting the Reserve Bank of Australia (RBA) will leave rates on hold next week.
The Kiwi dollar has gained 1.2% since news from China’s Fifth Plenum started filtering out, while the Aussie is up about 0.5%. Even though the two currencies look to be catching a bit of a break in Asian trade, US PCE inflation data this evening could knock them lower if it does prove stronger than analysts are expecting.
The stronger US dollar and patchy bank results pushed the ASX down further today. After ANZ and NAB’s results, sentiment around the banks has clearly soured with most investors believing the days of strong growth are over. The Fed’s unexpectedly hawkish statement has re-enlivened the US dollar, weighing on commodity prices and seeing poor performance in the materials sector. The unexpectedly poor results from many of the consumer-focussed stocks has also set off concerns about Aussie consumption and the state of the local economy. All these factors contributed to further the 0.25% fall we’ve seen in the ASX.