NEW YORK (MarketWatch) — U.S. investors scored a Halloween treat.
An unexpected everything-but-the-kitchen-sink stimulus plan by the Bank of Japan on Friday triggered some sizeable global market moves, across assets from currencies to stocks.
Considering the trillions of yen being bandied about, the market moves aren’t surprising— ¥80 trillion (roughly the equivalent of $714 billion), from 50 trillion. The central bank increased its purchases by ¥30 trillion from the prior pace, and markets went to town. The Nikkei 225 index NIK, +4.83% NIK, +4.83% got the ball rolling by rallying to a seven-year high.
“It’s a coordinated global relay race where the central banks are passing the baton,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
So where do we go from here? Here is what strategists are saying, along with some eye-popping charts that capture Friday’s early action:
U.S. stock markets:
Bear hibernation: Sentiment for U.S. stocks was already positive before the Bank of Japan lowered a quantitative-easing bonanza on markets, but the Dow industrials DJIA, +1.13% shot to a fresh record close. Jack Christiansen, senior analyst at Amplify Trading, said there’s no reason to think that Wall Street isn’t going to be a winner over the long run.
It’s worth noting that Christiansen also said, in a note, that at some point there will be a selloff, with that likelihood climbing in 2015 as the likelihood of a Federal Reserve rate hike draws closer.
“Until that happens, I am of the firm belief that the bears should be in winter hibernation after witnessing the latest stimulus package from the BOJ as well as being pushed by into the cave by good U.S. jobs numbers as well as an overall convincing earnings season,” he said.
Not so optimistic was the chief executive officer of Hedgeye Risk Management’s Keith McCullough, who said Japan is only going to perpetuate worldwide deflation with its latest move. “If you wanted to call a newsy top, the one you’ll see today rivals the Ali-Bubble, he said, referring to the Alibaba Group (BABA) IPO day that some market watchers described as the top of the market. The decline from this level in the S&P 500 may be epic,” he noted.
The Bank of Japan’s easing actions swiftly knocked the yen USDJPY, +2.84% lower in Friday trade, pushing its value against the U.S. dollar to a seven-year low. The yen traded at ¥112.34 late Friday, up from ¥109.22 on Thursday. Investors largely see the central bank’s measures as an effort to weaken the currency against its rivals, thereby exporting deflationary forces away from its borders.
“The problem with all this global currency devaluation is that nothing is based on fundamentals only intervention. It becomes a dangerous game over time as I believe overall risk assets have the propensity to be mispriced,” said Tom Tucci, head of Treasury trading at CIBC World Markets Corp., in a note.
Gold:
The dollar’s gain has been gold’s pain, and big time pain, indeed. The precious metal GCZ4, -2.09% dropped to levels not seen since 2010, taking out two big technical areas: $1,200 per troy ounce, along with its four-year low of around $1,180 an ounce. A rise in risk assets takes a toll on gold, and strategists right now are talking $1,000 per ounce as a possible next step down.
Edel Tully, strategist at UBS, said gold is sitting in a “precarious position” right now. That $1,180 level “has been tested and has held three times since 2013 – a close below could damage sentiment considerably.” Tully noted that physical gold buyers might be holding out for further declines in the yellow metal to step in.
Oil:
Oil prices were already beaten up, having fallen nearly 25% since June, but fell another 1.5% after the surprise BOJ stimulus news.
Already this week, Goldman Sachs slashed its forecast for prices, predicting West Texas Intermediate crude oil prices will spend the better part of 2015 at $75 a barrel. That followed a series of similar slashed forecasts at other banks, including Barclays and Credit Suisse.
Ruble:
Buffeted by sanctions, Russia has seen its currency drop against the dollar, even as Russia’s central bank delivered a higher-than-expected raise to interest rates—its largest in about eight months.
