‘Bold’ is the word du jour people, so it’s time for everybody just to calm down. It’s all okay now. You see, we have entered a new age – the age of central banks. These sacred institutions are now taking 'bold steps to support growth' and will print money until that is achieved. Allelujah!
It’s the new cult for economists I think – the cult of money printing (‘bold policy’) and it's scary stuff. Scary because people think it's new and ‘experimental’. That’s the conceit really, when policy makers delude themselves into thinking they are being clever and doing something new and bold. Printing money – brilliant!
Anyway, in this latest intercession, the Bank of Japan has taken ‘bold new steps’ to be ‘bold’. So they boldly decided to print something like ¥7 trillion per month, which in real money is like $70 billion per month or around $800-$900 billion per year. That’s what, something like 50-60 per cent of Aussie GDP every year and 15 per cent of Japan's own GDP – every year. "Jus' like that" (channelling Eddie Murphy from Golden Child again – classic line).
In case you are wondering what they will buy with that: bonds, ETFs, stocks and real estate – or financial securities linked to that. Anything they want, really, is the answer. In kicking this ‘new’ policy off, the Bank of Japan governor said, "This is an entirely new dimension of monetary easing, both in terms of quantity and quality''. These are the scariest words I’ve heard all year.
But it’s the new world order, people. Humanity has been striving for an end to poverty for eons. Okay they haven’t – in fact, the truth is that ‘elites’ need poor people so they can feel good about themselves and feel important. And it’s important to feel important – but whatever, we now have a solution to poverty, or at the very least the much more important issue of taxation. We don’t need taxes. We just have to print money to monetise debt – err, I mean, ‘to take bold steps to support growth, consistent with price stability’. Why don’t we all do it?
The Nikkei surged 2.2 per cent yesterday and the yen weakened quite a bit, now at 96.14 from 92.98. Outside of that there wasn’t much joy though. Maybe because the European Central Bank and Bank of England didn’t join in on the party – yet. I mean, we know the Bank of England will – governor Mark Carney, the 'yes man' of choice for the UK Treasury, has made assurances (as has the government).
Instead, the market focussed on weaker than expected jobs numbers out of the US again (US jobless claims rose about 30,000 to 385,000 in the week to March 30), as well as commentary from European Central Bank head honcho Draghi that the eurozone recession may extend into the second half of this year. Previously he was all upbeat about it ending. Whoops.
The irony is that any weak US data will be pounced on by the Fed to print more and the European Central Bank hinted last night it may provide further stimulus as well. So that should be good for stocks right? Not according to European investors, who sold off stocks (Dax off 0.7 per cent, CaC off 0.8 per cent and FTSE down 1.2 per cent) for the safety (hahaha) of bonds (10-year bonds down about 6 bps to 1.29 per cent).
On Wall Street there is actually a modest bid, a late one into the close with the S&P500 up 0.4 per cent to 1559, the Dow 50 points higher at 14,600 and the Nasdaq flat at 3221. So maybe there was a realisation that more money is coming. Certainly the Treasury market seems to think so, with bond yields falling further overnight – the 10-year off 4 bps to 1.76 per cent, the 5-year at 0.69 per cent and the 2-year at 0.22 per cent.
In price action elswhere we saw crude down another 1.1 per cent ($93.4), copper was 0.9 per cent higher while gold was up smalls – flat really, at $1553. In forex the Australian dollar is at 1.0434 (little changed from yesterday afternoon) and the euro is up over a big figure to 1.2933 after Draghi said the Cyprus deposit raid was a one-off.
That’s pretty much it, lots going on. Just a brief word on that Aussie data then – so retail sales and building approvals were strong yesterday. Up front, I have limited respect for the monthly retail survey, and view the latest two months of strong growth merely as catch-up. Consumer spending, including retail spending, has been robust for some years so this survey isn’t really telling us anything new. The surprising thing is that economists have placed more value in this survey rather that the accumulation of other evidence, most of it much more reliable. As I’ve mentioned before though the key value of this survey spewing out more positive numbers is that it changes perception, as it removes ammunition for doves who didn’t know about all the other data and focussed on this one, quite narrow survey. So it will change the debate and I suspect expectations for rate cuts will dwindle now.
For today, the SPI suggests Aussie stocks will rise 0.3 per cent, but apart from that there is not much locally. The key focus for markets will be payrolls tonight. Over the last three or four months jobs growth has averaged near the 200,000 mark, which is very strong. For this March print, payrolls are expected to still rise by a further 200,000, or just below. There's scope for disappointment then, which in this environment would see markets tank, even with a good print of 150,000.
Other than that we see eurozone retail sales and German factory orders.
Have a good weekend...
Adam Carr is a leading market economist
Folow @AdamCarrEcon on Twitter.