Saturday, 30 July 2016

S&P 500 near record high even as BoJ looks like "spent force"

The US stock market hovered near record levels on Friday after a mixed session.

The S&P 500 index closed up 0.2 percent to 2,173.60, just under last Friday’s all-time closing high of 2,175.03, after briefly touching a record intraday high of 2,177.13. However, the Dow Jones Industrial Average fell 0.1 percent.

US economic data on Friday were disappointing. The economy grew at a slower-than-expected 1.2 percent annual growth rate in the second quarter while first-quarter growth was revised to a 0.8 percent annual rate from the previous estimate of 1.1 percent growth.

Elsewhere, the STOXX Europe 600 Index fell 0.9 percent while the Nikkei 225 rose 0.6 percent.

Earlier, though, the Nikkei had fallen as much as 1.8 percent amid disappointment over the Bank of Japan's decision to limit additional stimulus to just enlarging its programme of buying exchange traded funds by 2.7 trillion yen a year.

“The market expected more,” said Hisao Matsuura, chief strategist at Nomura Japan.

However, some doubt that more would be helpful anyway.

Michael Schuman wrote that BoJ Governor Haruhiko Kuroda “has already thrown everything into his fight to save Japan”. The BoJ already holds a third of all outstanding government bonds, yields on many of these bonds are already negative, and the total assets of the BoJ have more than doubled in just the past three years.

Schuman suggested that “three years into his radical program to restart Japan, the BOJ might just be a spent force”.

Similarly, Ivan Martchev wrote: “Given that the Japanese have run a QE program since 2013 that is three times more aggressive than the Fed's QE program (relative to the size of GDP), and officials have still not gotten the results they were looking for is rather telling.”

“It may be simply too late for Japan,” he added.

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