FTSE 100 flat | Bank of Japan increases stimulus | Is the PBOC the last piece of the stimulus jigsaw?

<p>European markets swung between flat and small gains in trading on Wednesday after the Bank of Japan joined an ever lengthening list of Central Banks […]</p>

European markets swung between flat and small gains in trading on Wednesday after the Bank of Japan joined an ever lengthening list of Central Banks to announce fresh stimulus measures as economies fight against slowing global growth.

As the afternoon approached, the FTSE 100 was trading marginally higher by 4pts whilst the German DAX and French CAC Indices traded flat despite all European Indices opening higher.

News overnight that the Bank of Japan was moving to increase stimulus measures by boosting its asset purchase programme by an additional 10 trillion yen to 80 trillion yen helped to entice some investors back into the market this morning but I get the sense that many investors are waiting for prices to fall further before buying back into a market that has rallied strongly since June.

The governor of the Bank of Japan, Masaaki Shirakawa, confirmed fears that the prolonged slowdown in global growth was likely to delay Japan’s economic recovery a further six months, hence the move to increase asset purchases.

The recent bullish streak for global indices shows no medium term signs of abating but considering the strength of the rally, investors are moving to protect their holdings in case a correction comes. Of course a correction of 5% can be healthy in the long term bullish trend for indices.

Currently we have seen the Bank of England, US Federal Reserve, European Central Bank and Bank of Japan all move to help boost growth through easing measures. The Reserve Bank of Australia also cut interest rates in the summer too.

So the last piece of the stimulus jigsaw could well just be the People’s Bank of China and given the rhetoric out of the fast growing economy, expectations are raised for potential further stimulus moves in the near term. A move by China to curb slowing Chinese growth through further interest rate cuts or further stimulus injections into infrastructure could have positive ramifications for metal demand in the region and this could give heavyweight miners on the FTSE 100 a boost.

The issue as to whether Spain will do what many in the market now expect, which is to request a fully fledged bailout, remains in the headlights of many traders in the near term.

Whilst the ability of the European Central Bank to utilise its Outright Monetary Transaction programme to help cater for a bailout demand may help to curb any negative market reaction, investors still require transparency from Madrid and this has not been forthcoming as of yet.

Minutes from the Bank of England’s last policy meeting showed that all members voted to keep interest rates and quantitative easing levels on hold. The minutes showed that some members felt that there was likely to be a need for increasing the scale of asset purchases in the future but in truth the minutes lacked any surprises. The market is still trading on the belief that the Bank of England will increase asset purchases sooner rather than later beyond the current £375bn scale. We saw little or no reaction from investors on the back of the Bank of England minutes.

Shares in Aviva fell the most in trading, down 3.8% though much of this was related to the stock going ex-dividend by 10p. The losses in Aviva’ shares weighed on the performance of the insurance sector.

United Utilities shares rose 3% as bid talk concerning a middle east sovereign wealth fund continues to support the utilities firms’ shares price, which has rallied close to 7% this week as a result.

Eye’s switch towards housing data out of the US this afternoon in the shape of housing starts and existing home sales, which are both expected to nudge higher from previous readings.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.