This content is from: Portfolio

Daily Agenda: Monetary Policy Feels the Big Chill

Bank of Japan reaffirms commitment to more printing; Keystone XL pipeline defeated in Senate; FOMC minutes released this afternoon.

Much of the northern U.S. is waking up this morning to heavy snow and unseasonably cold temperatures. The forecast that’s weighing on investors’ minds, though, is whether or not central bankers and other global officials will push through further changes before year-end or if policy will remain frozen in place. The Bank of Japan’s announcement today showed policy staying the course and the Federal Open Market Committee (FOMC) minutes release this afternoon is expected to contain more of the same. Minutes from the Bank of England’s Monetary Policy Committee’s November meeting, published today, revealed an unchanged 7-to-2 vote, with a marginal shift toward more dovish sentiment. The remaining wild card is European Central Bank president Mario Draghi, who still faces intense pressure to act as growth levels in Europe remain anemic.

Bank of Japan backs Abe. Bank of Japan governor Haruhiko Kuroda reaffirmed his commitment to the extraordinary easing measures in place as the policy board voted 8 to 1 to continue the current expansion of the monetary base. During today’s briefing, the central banker warned that consumer inflation levels could drop below an annual 1 percent pace again as the bank works to prop up demand.

U.S. economic data on deck. October housing starts will be released this morning with consensus forecasts for a positive follow through to September’s sharp increase in ground breaking on new homes. The main U.S. data point today, however, is likely to come at 2:00 pm, when the FOMC releases notes from its most recent meeting. Investors will be looking for any adjustment in language that might indicate a shift in sentiment at the Federal Reserve.

Keystone XL pipeline defeated in the U.S. Senate. A bill supporting the construction of TransCanada’s Keystone XL pipeline was narrowly defeated with a vote of 59 to 41 in the U.S. Senate yesterday. Senate minority leader Mitch McConnell pledged to raise the issue again when his party assumes control of legislature in January. Sources close to President Barack Obama’s administration have suggested that the White House may be open to a deal to support the project in return for other concessions.

Hong Kong simmers. A small group of pro-democracy protesters in Hong Kong smashed into government headquarters today in reaction to police moves to remove barricades and encampments. As global media attention has turned elsewhere, Chinese authorities have been increasingly aggressive in removing students from public spaces while the opposition has become internally divided.

Portfolio Perspective: U.S. Equities Are Positive for NowJohn Kosar, Asbury Research

This week our table shifts to a more equally balanced, neutral distribution of key near-term U.S. stock market factors from a positive one for the previous two weeks. The market started off the week in a bullish near-term environment stemming from the positive one-month rate of change in the S&P 500 amid strong, positive exchange-traded fund asset flows, low volatility and the recent 2 percent rise in the Nasdaq 100 above its 4,147 benchmark high hit in September 2000. Moreover, the latest investor sentiment data suggest that the mid-October advance is not yet over.

There are some headwinds to be aware of, however, such as widening corporate bond spreads and continued weakness in a positively correlated German DAX. Our research suggests that it would currently take a decline below 2,000 in the S&P 500 — a 2 percent drop from Friday’s close — to put enough long positions into the red to trigger a correction.

John Kosar is the director of research at Schaumburg, Illinois-based financial information services provider Asbury Research.

Related Content