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Fed Passes the QE Baton to the BoJ   October 27 - October 31
Fri, 31 Oct 04:13 PM EST/08:13 PM GMT
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The Fed ended QE3 this week, six years after beginning the extraordinary effort to ease monetary condition in the US, and just two days later the Bank of Japan doubled down on its own QE policies. Note that the Fed retained its language on keeping interest rates low for a "considerable time" but dropped its "significant" wording in regards to slack in the US labor market. In addition, the Q3 US GDP topped expectations and grew 3.5%, according to preliminary data. Global equity markets surged higher following the events, with both the DJIA and S&P500 back at all-time closing highs on Friday, the Nikkei up 5% and the Nasdaq at its best level since February 2000. For the week, the DJIA had its biggest gain since early 2013, rising 3.4%, the S&P500 rose 2.7%, and the Nasdaq added another 3.3%.

With progress in the battle for higher inflation slowing, the BoJ caved to pressure and expanded its asset buying program, raising its annual monetary base expansion target to ¥80T from ¥60-70T in a tightly split 5-4 decision. The bank cited "weak developments in demand following consumption tax hike and a substantial decline in crude prices". Annual JGB purchases will also rise to ¥80T from ¥50T prior, while the average maturity held would rise to 7-10 years from seven prior. Subsequently, the BOJ also lowered its FY14 GDP target to 0.5% from 1.0% and core CPI forecast to 1.2% from 1.3%. USD/JPY hit seven-year highs above 112 after the announcement.

The advance look at US third quarter GDP was pretty rosy (+3.5% v +3.0%e), with the headline figure much better than expected. However, analysts were quick to point out that a big gain in government spending was responsible for much of the outperformance, while the fixed investment, exports and imports all declined. Government spending broke a long string of declines and grew at a 10% rate in the quarter. The September durable goods was negative for the second consecutive month, however the decline was much less severe that the one seen in August, and the August data was revised slightly higher. ...
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