Article by ForexTime

The Bank of Japan surprised market participants on Friday by increasing their already aggressive bond purchases (QE) by a third. In addition, it will expand those purchases to include stocks and real estate investments. The Japanese pension fund also announced that it will increase its allocation to domestic and foreign stocks. The increase was substantial, with the Bank announcing that it could purchase up to an additional 10-20 trillion yen.

The move gave a huge boost to global stocks. The most dramatic effect was seen in Japan. With the Japanese yen tumbling to the lowest level in seven years, the Nikkei Index surged nearly 5% to the highest level in seven years. The Nikkei climbed above a major resistance line drawn over its 1996, 2000, 2007, and 2014 highs. That upside breakout suggests that Japanese stocks may finally be emerging from their role as one of the world’s weakest stock markets. Japan is trying to emerge from nearly two decades of deflation. The latest Japanese inflation figure of 1% is only half of the target rate of 2%. It still has a ways to go.

S&P 500 hitting a new record closing high on Friday, on rising volume. Small caps turned up as well. The Russell 2000 Small Cap Index gapped through a resistance line extending back to early July. Friday’s small cap gain of 1.5% was even stronger than the 1.1% gain for the SPX. During October, small caps rose three times as fast as large caps. That’s the first time we’ve seen small cap outperformance since the spring, which is a very encouraging sign. Sector leadership for the week came from technology, financials, healthcare, and industrials. Three of those are economically-sensitive. Commodity stocks were again the weakest. That’s because the surging dollar pushed commodity prices even lower especially gold.

Article by ForexTime

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