Daily Stock Market Update: BOJ Negative Rates Fail to Support Asian Equities – Jan 29, 2016

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Asian markets got an extra dose of volatility today, as the BOJ announced its decision to implement negative deposit rates. While the central bank maintained its current QQE program, it will now charge banks for keeping cash in their vaults as a way of encouraging lending activity.

The Nikkei surged to a high 17,638.93 then retreated to 17,254.80 (+1.25%) while the China A50 index also reacted positively to the news and is up 194.43 points to 8,838.78 (+2.25%). USDJPY skyrocketed to the 121.50 area before retreating back to the 119.00 levels while EURJPY made a test of 131.00.

For now, the BOJ is keeping its pace of easing at 80 trillion yen per month but reiterated that it will cut interest rates again if necessary. Prior to this, Japan printed several weaker than expected reports, with household spending down by 4.4% and the Tokyo core CPI indicating a 0.1% drop in price levels.

US equities slightly higher despite weak data

Economic reports from the US came in mostly below expectations, led by the large slump in durable goods orders and the weaker than expected 0.1% uptick in pending home sales. Even so, equity indices managed to chalk up some gains, with the Dow 30 up 125.18 points to 16,069.64 (+0.79%), the S&P 500 index up 10.41 points to 1,893.36 (+0.55%) and the Nasdaq up 38.5 points to 4,506.7 (+0.86%).

Risk sentiment continued to improve in the US trading hours when talks of an OPEC emergency meeting to cut production hit the airwaves. Russia’s oil minister was quoted saying that Saudi Arabia had a proposal for countries to trim production by 5% but a senior OPEC official clarified that no such plan has been made. Crude oil rallied close to $35/barrel but retreated to $33/barrel before the closing bell tolled.

European stocks closed lower

These positive vibes weren’t present in the European markets, as traders appear to be pricing in the odds of seeing downbeat CPI estimates from the euro zone. Investors also probably lightened up their positions ahead of the BOJ statement and the release of preliminary GDP readings from France and Spain.

The German DAX is down 241.23 points to 9,639.59 (-2.44%), the French CAC 40 is down 58.20 points to 4,322.16 (-1.33%), the Euro Stoxx 50 index is down 66.37 points to 2,977.10 (-2.18%), and the London FTSE is down 58.59 points to 5,931.78 (-0.98%).

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.