\n\tBy Greg Peel<\/p>\n
\n\tThe Dow rose 62 points or 0.5% while the S&P gained 0.4% to 1492 and the Nasdaq<\/span> added 0.3%.<\/p>\n \n\tThe most highly anticipated Bank of Japan monetary policy meeting in years failed to excite yesterday, sending traders scrambling to cover their short yen positions. Shinzo<\/span> Abe won government by promising fiscal stimulus, a lift to Japan's long standing inflation target of 1% to 2%, and shock-and-awe monetary policy (unlimited yen printing). The latter two were always going to require cooperation from Japan's independent, and infamously staid, central bank. The BoJ<\/span> did indeed cooperate, but only in a form of compromise.<\/p>\n \n\tJapan's inflation target is now 2%, and there will be unlimited yen printing, but not for another year. This unexpected timing factor sparked a short covering rally in the currency. However while many were disappointed in the watering down of potential shock-and-awe monetary stimulus, others were surprised the current BoJ<\/span> board even played ball at all. The central bank's leadership tenure expires in April, after which Abe can ensure a more complicit team is put in place. In other words, the one year delay on unlimited yen flow may only prove to be a delay of a few months.<\/p>\n \n\tWhich is how analysts were seeing the Japanese story play out in 2013 anyway, as they projected from late 2012. But what does it all mean? In short, shock-and-awe stimulus, if adeptly managed, puts the world's third largest individual economy back in the game, with potentially positive ramifications across the global economy. It makes Japanese exports more affordable, which from Australia's point of view has the potential to increase raw material exports to Japan. However unless the RBA<\/span> joins the global race to the bottom on currency valuation, the flipside<\/span> is a stronger-for-longer Aussie dollar and an ongoing drag on Australia's non-mining economy.<\/p>\n \n\tMeanwhile across the Pacific, Wall Street was little focussed<\/span> on Japan last night with attention turned to the quarterly reporting season under way. Last night's net result, which included some big Dow names such as Verizon, Johnson & Johnson and DuPont, was basically “okay”. The trend so far, after 69 of the 500 S&P stocks have reported, is of 62% expectation “beats”. The caveat, however, is that earnings forecasts were earlier marked down so far, “okay” results are not the stuff of super-rallies. And Wall Street is already feeling the effects on thinner oxygen after 2012's QE-driven surge.<\/p>\n \n\tThis factor also has the tea-leaf readers at odds. Dow Theorists were near wetting themselves on Friday when the Dow Jones Industrial Average hit a new post-GFC<\/span> high. This was because the Dow Jones Transport Average is already at an all-time high. Dow Theory suggests that when both averages mark new highs, a new bull market is under way.<\/p>\n \n\tBut tea leaf reading is not, believe it or not, an exact science. One cohort of Dow Theorists insists that bull market confirmation requires the Industrial Average to hit a new all-time<\/em> high, which means exceeding 14,164 (another 3.3%). Indeed, if this level is not breached, the signal is in fact bearish<\/em>.<\/p>\n \n\tI might stick to my own preferred technical indicator – a coin.<\/p>\n \n\tSo as Wall Street continues to close the gap, if not the memory, of the GFC<\/span>, and the Republicans appear to be offering some breathing space on the debt ceiling, the bulls are pointing to unlimited global stimulus as the reason why one simply cannot sell and the bears are pointing at a lack of follow-through into earnings, hiring, corporate activity and so forth as a reason one simply cannot buy. Therein lies today's market.<\/p>\n \n\tAn interesting piece of data was released in the US last night. Sales of existing homes fell 1% in December, bucking a trend which saw sales rise a net 9.2% over all of 2012 to their highest level since 2007. The conclusion is that the buyers are willing, but the banks are not. US lenders are yet to join in the whole “the GFC<\/span> was so<\/em> yesterday” theme and ease their tight lending restrictions, hence crimping the US housing market's true recovery potential. There are those who suggest such a capitulation would be the catalyst the US economy really needs.<\/p>\n \n\tMeanwhile, the German ZEW<\/span> index of economic expectations has jumped more than expected this month to its highest level since May 2010. And the ECB<\/span> hasn't even fired up its own printing presses just yet.<\/p>\n \n\tThe US dollar index fell 0.2% last night on yen short covering to 79.89 while the Aussie is up half a cent to US$1.0565. Gold is up US$3.60 to US$1693.70\/oz.<\/p>\n \n\tThe BoJ<\/span> policy announcement, for what it was worth, still provided a boost to commodity prices, as did the ZEW<\/span> index, sending base metals mostly up around one percent, Brent crude up US71c<\/span> to US$112.48\/bbl<\/span> and West Texas up US60c<\/span> to US$96.64\/bbl<\/span>. Spot iron ore is steady at US$145.90\/t.<\/p>\n \n\tThe SPI<\/span> Overnight was up 11 points or 0.2%.<\/p>\n \n\tAfter the bell on Wall Street some big US tech names reported, with Google shares up 4% in the after-market as a result and IBM (Dow) up 3%. Today in Australia sees the release of the December quarter CPI inflation data, which economists will be watching closely with regard to the RBA's<\/span> capacity to cut rates further in a couple of weeks' time. Will the RBA<\/span> take the BoJ<\/span> on board? \n\tAll overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX<\/span> and more available in the FNArena<\/span> Cockpit. Click here<\/a>. (Subscribers can access prices in the Cockpit.)<\/em><\/p>\n \n\tAll paying members at FNArena<\/span> are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.<\/em><\/p>\n
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