The starting point for this morning’s stock market opening looks like a session of nervous consolidation. However, today’s Bank of Japan meeting represents a macro wild card for markets today.
While Wednesday’s solid upward momentum in US markets stalled, it was a better effort than the sharp reversal in our market yesterday. Local markets therefore go into this morning’s session having sharply underperformed the US over the last two days.
Often this might be expected to produce a catch up session on local markets. However, recent weakness in the ASX 200 has been driven by local factors. Ongoing weakness in commodities and bank results that have provided a clear view into the struggle to achieve growth in an environment of moderate economic growth and increasing regulatory costs. Another weak session for commodities overnight may see continued downward momentum in local markets this morning.
Further monetary stimulus from the Bank of Japan is a live possibility today. The range of possibilities for BOJ action looks wide and markets go into this decision with considerable uncertainty. There’s a significant possibility that the BOJ will sit on its hands. However if they do act, it’s possible they could go with a big and dramatic package in an effort to shock the economy into growth with what could be the last shot in their monetary locker. This approach could see a significant announcement effect for regional stock markets.