What the Fed took away, the Bank of Japan gave back to the punchbowl in what was an astounding end to a big week for global finance.
A day after the Fed had successfully convinced markets that its third round of quantitative easing would end without a hiccup, Japan’s central bank sprang the biggest shock of the year by announcing a significant increase in its QE program to around 80 trillion Yen for next year, promising traders another huge sugar hit.
As a result markets, led by Tokyo, stormed higher on Friday night, capping a month of wild swings which at one stage saw shares, commodities and especially bonds totter on the edge of a big plunge.
But that wasn’t to be and by the close of trading early Saturday morning markets had racked up solid gains for October – with the exception of gold which fell out of bed on Thursday and Friday and lost more than 5% last month, and will head even lower in coming days.
So last week saw US shares rise 2.7% to new record highs on Friday, European shares finish 2.1% higher, Japanese shares surged 7.3%, Chinese shares jumped 5.1% and even Australian shares rose 2.1%. Bond yields rose in the US, were flat in Australia and fell in Europe and Japan.
Commodity prices were mixed with gold slumping on the ending of the Fed’s QE, but other metal prices rose.
And while the yen plunged and the euro fell against the $US, the Aussie dollar was unchanged at just under 88 US cents.
Our market will start around 16 points higher this morning.
Despite the jump in volatility, October ended up being a good month for shares. European shares fell 2.7%, but US shares rose 2.3% to those new record highs, Japanese shares gained 4.5% (all because of the Bank of Japan’s move on Friday) and the Australian share market rose 4.5%, which was a pretty good result considering the early ups and downs.
The AMP’s chief economist, Dr Shane Oliver says that to give the Bank of Japan move some context, and adjusting for the size of the Japanese economy its equivalent to the Fed buying bonds to the tune of about $US185bn a month, whereas QE3 at its peak was just $US85bn a month.
“Quite clearly the BoJ is determined to meet its growth and inflation objectives,” Dr Oliver wrote at the weekend.
Reflecting this, the Yen plunged to a six year low and the Japanese share market surged by nearly 5% on Friday.
Dr Oliver also said the move is also positive globally as the BoJ is helping to fill the gap left by the Fed halting its easing campaign last week. The ECB will help fill the rest, he added.
The Dow and S&P 500 ended at record highs early Saturday morning, our time.
The S&P 500 gained 23.4 points, or 1.17%, to 2,018.05, a record finish. It came within about a point of hitting an intraday record high.
From verging on correction territory mid-month, the S&P 500 is now up 8.4% from its October 15 low and up 9.2% for the year so far.
Reuters said the S&P 500 posted its best two-week gain since December 2011.
On Friday the Dow rose 195.1 points, or 1.13%, to 17,390.52, a record close. The Dow also hit an intraday record high of 17,395.54.
For the week the Dow rose 3.5%, its best percentage weekly gain since January 2013.
The Nasdaq Composite added 64.60 points, or 1.41 per cent, to 4,630.74 and finished at its highest since March 2000
For the week, the S&P 500 was up 2.7% and the Nasdaq was up 3.3.
For the month, the Dow was up 2%, the S&P 500 was up 2.3% and the Nasdaq was up 3%.
In Australia, the ASX 200 index closed up 50 points on Friday, or 0.9%, to end the month on 5526.6. The All Ords added 48 points, to 5505.
