Stocks Bounce Ahead of Fed and BOJ

European stock markets moved higher going into the FOMC announcement, as tech stocks bounced back following fresh closing records in S&P 500 and Dow. The DAX is higher and nearly at new record highs, while the FTSE 100 is underperforming slightly with nearly a 0.5% gain. Asian stock markets closed mixed, with the Nikkei down -0.08% at the close and Hang Seng and ASX up 0.09% and 1.06% respectively. Chinese stocks underperformed as financial and developers headed south and the CSI was down -1.3% at the close amid speculation that China’s central bank may follow widely expected Fed tightening.  The Fed is widely expected to increase the Fed Fund rate by 25 basis points.

The BoJ meets this week, announcing Friday, amid widespread expectations for no change in policy settings, thought there is a strong likelihood that the central bank will be upgrading its economic outlook while lowering inflation forecasts.

The currency markets are holding steady, with little movement in the EUR/USD.

The ECB’s Weidmann said that QE risks are generating political pressure on ECB. The Bundesbank President once again stressed the risk of QE, highlighting that sovereign bond purchases blur the line between monetary and fiscal policy, which “can lead to political pressure being exerted on the euro system to maintain the very accommodative monetary policy for longer than appropriate from a price stability standpoint”. He added that sovereign bond purchases “are naturally also more problematic in view of the disciplining effect of the capital markets on government finances”, as “risk differentiation between the different countries is significantly reduced”.

Chinese IP Rose More than Expected

China industrial production rose 6.5% year over year in May which was better than expected while retail sales up 10.7% year over year.  Analysts has expected IP to grow by 6.3%. May fixed asset investment grew 8.6% in the first 5-months of the year, which was below expectations.  Fixed-asset investment had been forecast to grow 8.8% over the first five months of the year, easing from 8.9 percent in January-April. Expectations for retail sales were for a 10.6% increase. Growth of private investment slowed to 6.8% in January-May from 6.9% in the first four months, suggesting a slight weakening of the private sector’s appetite to invest as small- and medium-sized private firms still face challenges in accessing financing.

Japan April industrial production rose 5.7%, unchanged from the flash reading after 3.5% increase in March.  Industrial output increased 4% month over month in April. Production had dropped 1.9% in March. in April, shipping and stock advanced 2.7% and 1.5%, respectively as previously estimated.