The European markets started the session with sharp gains. The catalyst for the initial rise is the unexpected decision by the Bank of Japan, which increased its annual program of debt acquisition from 590 000 M USD to 726 000 M USD.
While the Fed’s monetary policy has been the main driver of equity markets, the Bank of Japan also starred in an important role in creating liquidity. At a time when the Fed and the Bank of England are starting to reverse the course of their monetary policy, the decision of the Bank of Japan is an important step to counter the decrease in liquidity generated by those two institutions.
The final reading of inflation in the Euro Zone will be released today. Economists estimate that inflation has recorded in October grew 0.40%. Although the effects of the ECB’s measures has only impact on the level of prices in the coming months, if inflation is lower than estimated, it may have a negative impact on investor sentiment.
US markets were boosted by corporate earnings, positive reading of GDP and operations related to the end of the financial year of some institutions.
The US economy benefited from rising exports and a sharp drop in imports, particularly oil, which was explained by the increasing crude oil production in the country. Moreover, the huge increase in military spending boosted public spending and affected GDP by reflex.
US indexes were also positively influenced by the fact that yesterday (just like today) represent the end of the financial year to several investment funds and pension funds. Generally, these periods are positive for stock markets.