Global equities markets were initially give a boost by the rebound in oil price. Then on Friday, BoJ shocked the markets by cutting rate into negative territory and pushed stocks further higher. DJIA closed at 16466.30 comparing to January's low of 15450.56. S&P 500 closed at 1940.24 comparing to January's low of 1812.29. Technical development in US equity indices suggests that further rise would be seen, at least in near term. In the currency markets, yen was overwhelmingly the weakness one, followed closely by swiss franc. Both currencies would likely stay pressured in near term. Meanwhile, aussie and loonie were the strongest major currencies, followed by euro and dollar.
Here are some recaps of central bank activities. On a surprising move, BOJ cut its benchmark rate to -0.1%, with a 5-4 vote, from 0.1% previously. This is the central bank's first rate adjustment since October 2010. Note, however, that the negative rates decision will only affect some accounts as it adopts a 'three-tier system'. The drive for the cut is to return inflation to the 2% target 'at the earliest possible time'. Policymakers also suggested that 'further decline in crude oil prices' and uncertainty particularly in the Chinese economy might prolong deflation in the country. The BOJ again delayed the timeframe for achieving this target to fiscal year 2017. Policymakers pledged to 'cut the interest rate further into negative territory if judged as necessary'. The BOJ left the asset purchase program unchanged at expansion of base money at an annual pace of 80 trillion yen. More in BOJ Adopts Negative Rates.
RBNZ left the OCR unchanged at 2.5%, following a -25 bps cut last month. However, policymakers have turned more dovish and suggested inflation may take longer to reach the target range than previously expected. The central bank also suggested that further easing may be needed in coming months to make sure inflation would return to the middle of the target. The key concern is that further easing would further stoke Auckland's housing market. More in Further Cuts Needed To Boost Inflation, RBNZ Says.
The Fed left the policy rate unchanged in January, following a +25 bps hike a month ago.. While this had been widely expected, the post-announcement reaction suggests that the market interpreted FOMC's message as dovish. Investors were particularly concerned over the removal of the reference that risks to the outlook for both economic activity and the labor market are 'balanced'. The Fed appeared more cautious over the economic developments since the last meeting. Yet, it affirmed that strength in the job market in spite of the temporary growth slowdown. The annual Statement on Longer-Run Goals and Monetary Policy Strategy has showed that the median estimate for the 'normal rate' of unemployment fell to 4.9%, from 5.2-5.5% projected last year. More in Fed Revised Economic Assessment Lower. Yet, Remained Confident Over Employment.
More central banks activities are scheduled for this week together RBA is expected to keep interest rate unchanged at 2.00% on Tuesday. BoE is also expected to keep interest rate unchanged at 0.50% on Thursday. More importantly, BoE will release the quarterly inflation report which might trigger some volatility in sterling. In addition, there are some important economic data including China PMIs, UK PMIs, US ISM indices as well as the closely watched non-farm payroll.
DJIA's rebound from 15450.56 extended higher last week and focus is now back on 16593.51 near term resistance. Decisive break there will indicate that fall from 17977.84 has completed already. And in the case, stronger rise would be seen back to 17977.84/18351.36 resistance zone. More importantly, in that case, the development will suggest that price actions from 18351 were merely a sideway consolidation pattern. And in that case, it could have even completed and the up trend could be ready to resume for another high above 18351.36. And such development will give Fed more confidence to hike interest rates later in the year and will give dollar some support.
