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Bank of Japan Stimulus Ignites Furious Rally

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Today's financial recap and tomorrow's financial outlook.

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The Bank of Japan took world markets by surprise this morning by announcing an expansion in its monetary stimulus program. To help end what it calls Japan's "deflationary mindset", the central bank will now purchase 80 trillion yen worth of assets per year vs. 60 to 70 million previously.  The action was approved in a narrow 5-4 vote.

US, European, and Asian stocks all skyrocketed on the news. Japanese equities were so strong that Nikkei (N225)  futures were halted limit-up before the US open.

Morgan Stanley issued a report saying that investor exposure to Japan was at a 20-month low heading into the announcement. This came just a few days after a Bloomberg article noting that short-selling on Japanese stocks was at a six-year high.

So obviously, traders were caught off guard.

Japan's Government Pension Investment Fund also revealed its new asset allocation program, formally announcing that it would move money away from bonds in favor of Japanese and foreign stocks. 35% of the fund will be allocated to Japanese bonds, down from 60% previously. Japanese and foreign stocks will each have 25% allocations, up from 12%.

The US Dollar rose nearly 3% against the yen, which weighed on energy prices. Crude oil slipped below the widely-watched $80 level in morning trading, but bounced back.

The S&P 500 rose 1.2% on the day, with strong gains in risky sectors like biotech and social media, as well as cyclical groups like energy and materials. Closing at 2018.05, the SPX is less than two points away from the 2019.26 all-time high set on September 19.

The major loser today was gold, which fell 2.3%, making new lows for the current bear cycle in the metal.

Shares of heavily-shorted action camera maker GoPro (GPRO) rose 13.0% after the company reported third-quarter results that were well ahead of analysts' expectations. Fourth-quarter guidance was also very impressive.

In US economics, September Personal Income and Spending both came in below analysts' expectations. The third-quarter Employment Cost Index rose 0.7% vs. the 0.5% consensus forecast. The PCE deflator rose 1.4%, slightly below the 1.5% expected.

The Chicago PMI rose to 66.2 in October, which was well ahead of the 60.0 consensus.

And lastly, the final reading of October University of Michigan Consumer Sentiment was 86.9, slightly ahead of the 86.4 expected.

Tomorrow's Financial Outlook

The October ISM Index and September Construction Spending Reports will be released at 10:00 a.m. ET. US auto and truck sales are also due, along with Markit Manufacturing PMI figures for the US England, Italy, France, Germany, and the Eurozone.

China will report its October HSBC Manufacturing PMI and Non-manufacturing PMI numbers Sunday.

Major names reporting earnings include Sprint (S), CNA Financial (CNA), Sysco (SYY), American international Group (AIG), Community Health (CYH), and Herbalife (HLF).

Twitter: @Minyanville

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No positions in stocks mentioned.

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