Stock markets in the U.S. continued their surge over the past five days. An overall good earnings season and economic data pointing to a growing economy and stronger consumer buoyed markets. A surprise expansion of the Bank of Japan’s balance sheet on Friday accelerated the markets’ rise.
Japan’s Central Bank increased the pace of its asset purchases to the surprise of market participants. Politicians and others have been pressuring Governor Kuroda on the efficacy of its policies. The Nikkei surged on news of the program and lifted markets around the globe. The yen plummeted substantially at the same time.
The Federal Reserve voted to end the third iteration of QE citing better employment prospects, a stronger economy, and less fear of deflationary pressures. The NY Federal Reserve Bank also announced new terms of its reverse repo programs, including higher rates and a larger overall size to the program. Both news items point to monetary policy attempts to normalize.
Europe is still digesting the results of its stress test on the banking system. Headlines have been optimistic but close scrutiny is raising questions over whether the tests were tough enough and compatible to an era of higher capital standards in global finance.
The dollar’s rise saw resurgence toward the end of the week. The end of QE and a Q3 GDP growth number of 3.5% brought down commodities such as gold and oil. As German GDP forecasts for Q4 have been lowered to zero and Japan continues monetary expansion, the dollar strengthened against the Euro and yen respectively.
Shanghai and Hong Kong continue to press toward a link between their respective capital markets. While a program expected to formally link the two centers was delayed from its October 27th launch officials from both regions cite progress is being made. Connecting Shanghai and Hong Kong is expected to add liquidity to both markets and increase global exposure to China’s capital markets.