The BoJ did nothing to its policy as expected but instead of exercising some self introspection and cutting its unrealistic and disastrous inflation target if actually met (because it would blow up their bond market and crush consumer spending), they just punted the timing of meeting the existing one out to fiscal year 2020 (ending in March). That is the 6th time Kamikaze Kuroda has done so since this brand of QE nationalization and monetization began in 2013. With delusion he said “It’s not true that just because our forecasts proved to be wrong, we lose the public’s trust in our policies…We decided to keep the current monetary policy because the momentum toward 2% inflation is firmly maintained.” He also had to defend his persistent purchases of stock ETF’s. Comically and sadly to us he said that the BoJ “won’t speak at company shareholder meetings” addressing the accusations that they are a major shareholder in so many companies. He said buying ETF’s is “not aimed at stock prices” even though he’s buying stocks but instead “are aimed to work on risk premiums.” Whatever. BoJ monetary policy has completely gone off the rails in a scorched earth kind of way.
In spite of cutting its inflation forecasts for the next few years, the BoJ did instead raise its GDP forecast which begs the question, if growth is better, why care about generating a higher cost of living when wage growth is modest. Either way, the BoJ is in the midst of a taper, by as much as 40% as they are on an annual run rate of buying 50T yen of JGB’s instead of the stated 80T yen goal. The yen did weaken in response to policy left unchanged which then in turn helped Japanese stocks rally. JGB yields were flat.
Signs that global trade continues to recover after two years of softness, Japan reported that its exports rose 9.7% y/o/y, a touch above the estimate of up 9.5% while imports jumped by 15.5% y/o/y vs the forecast of up 14.4%. On a merchandise volume basis, exports were up by 4% with the best gain to China that saw volume exports rise by 14.2%. Volume growth to the US was up by 5.2%.
With Draghi, the ECB is terribly afraid of upsetting markets and why we don’t expect much today in the press conference other than gently laying some of the groundwork for more news in September. He did though repeat that they “could increase QE in size, duration if the outlook worsens.” There was expectations that this wording would be taken out and the euro fell slightly in response and European bond yields fell slightly. Draghi will go really slowly with this and hold everyone’s hands in the process. We know the Fed is also doing their best to tell markets about the eventual beginning of QT (they meet next week) in order to soothe nerves and hope the process goes smoothly. I’m still not convinced advanced notice will really matter as the impact is still tightening. I’ll give this analogy. While I’m not that strong, if I give you a week’s notice that I’m going to punch you in the face and then hug you after, will the punch feel any less painful when it actually comes?
Notwithstanding the real wage squeeze in the UK, retail sales ex fuel in June was a bit better than expected with a .6% rise m/o/m vs the forecast of up .4% and which comes after a 1.1% drop in May. The Office for National Statistics said “A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales this month.” Bottom line, it was nice to see the upside to sales but the ONS estimates that it would add just .1 of a percentage point to the growth rate for Q2. The sales beat also did nothing to help the pound as its down and back below $1.30. The BoE next meets on August 3rd and we’ll see how Carney responds to the growing mutiny on at least taking back the emergency rate cut after Brexit because his dire forecasts that underpinned the decision haven’t come close to being realized.
In the volatile week to week measure of individual investor stock market sentiment, AAII said Bears fell almost 4 pts to the lowest level since January 5th at 25.8. Bulls rose 7.2 pts to 35.5, the most since early May. This follows the spike in bulls seen yesterday in the II data and the drop to a microscopic level in bears. With the NDX up 9 days in a row, it doesn’t take a technician to say we are likely overbought here. That said, the bulls have certainly been dead right on this market.