US markets push back to record highs thank to BoJ

Markets have been given a Friday boost by the Bank of Japan, which has stepped into the void left by the Fed. Heading into the close, the FTSE 100 was 70 points higher.

US flag
Source: Bloomberg

FTSE extends rally

Fears about a slowing global economy and other tedious fundamentals that seemed so pressing fewer than three weeks ago have been cast aside in another unseemly rush to buy shares.

Having lagged behind their US counterparts in the past week, UK and European markets are now desperately playing catch-up, with the DAX and CAC both adding over 2%. Although some of this might be attributable to the usual month-end rally the BoJ has certainly banished any lingering doubts that the end of US QE might have created.

Had it not been for the Japan boost SuperGroup’s decline today might have been even worse, but it still sits at a four-month low. People are relatively forgiving of Next when it complains about warm weather but SuperGroup doesn’t have the luxury of a dividend to tempt investors, while simultaneously trading on a much higher earnings multiple. The 800p level holds for now but below that and we might see 700p very quickly.

US markets return to record highs 

The correction is over, long live the rally. With the end of the year in sight, and the final quarter well underway, it looks like equity bulls are determined to get the market moving onwards to a good finish for 2014. Having seen the correction and the rally to new all-time highs, it would seem to suggest that the worry about excessive valuations has been put off until January 2015 at least.

Earnings, economic growth and central bank policy are all aligning to set up a rally that will take us in the direction of 2100 on the S&P 500 by the end of the year.

BoJ's QE sends gold lower

More QE is supposed to be good for gold, apparently. This thesis has broken down today as the precious metal, and silver too, takes one of its most horrendous dives in years. The game of ‘hunt the price range’ has started all over again, and while we may have some days of limited buying the selling is likely to continue until at least $1154. If gold can’t even rally when a central bank boosts its asset purchase then the picture is bleak indeed, with a stronger dollar resulting in further losses towards $1000 in time.

US light is pushing below $80 once more, threatening to ignite a fresh downward leg that, if it closes below $80 on a weekly basis, could take us all the way back to 2010 lows at $70.

Dollar makes fresh highs

The dollar is making fresh highs versus the yen this afternoon, but in the week to come the interest will shift back to the euro and the pound when the UK and eurozone central banks conduct their meetings.

The Bank of England is likely to be just another non-event, but the European Central Bank will be keenly aware that inflation data isn’t getting any better. Even so, the Federal Reserve continues to do the ECB’s work for them, with the euro dropping further against the US dollar.

Mario Draghi has thus been bought some breathing space to cobble together new rescue plans – we can only hope he uses his time wisely, since the unemployment data from Italy shows that there is still much to do.

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