On Friday, the BOJ launched yet another round of stimulus designed to weaken the yen and ignite a rally in risk assets. It lowered a benchmark interest rate to negative-0.1%, following the European Central Bank into that particular corner of the financial Twilight Zone.
Gov. Haruhiko Kuroda described the move as necessary at a time of weak global growth and increased risk aversion. And he certainly succeeded in pushing stocks higher for one day. But none of his past efforts has worked for very long, if at all. Indeed, the BOJ, itself, just pushed off the date at which it expects to achieve its 2% inflation target for the fourth time.
Then today, the oil market fought back. Or rather, fresh reports debunked all the “coordinated OPEC/non-OPEC production cut” talk from last week.
|Saudi Arabia and other OPEC nations aren’t about to throw a lifeline to U.S. shale producers.|
The Wall Street Journal said powerful Arab oil-producing nations are dead set against an emergency meeting or a quick output cut. Kuwait, Saudi Arabia, Qatar and the United Arab Emirates don’t want to throw a lifeline to the sinking U.S. shale companies they’re competing against.
As for Iran, it’s pushing full steam ahead with plans to ramp production back up now that international sanctions are no longer an issue. The country wants to produce and export around 1.5 million additional barrels per day, a huge leap from the 1.1 million BPD it’s exporting now.
|“Iran is pushing full steam ahead with plans to ramp production back up.”|
Bottom line: With oil falling again and central bank news largely behind us, we’ll have to see how markets settle out in February and beyond. But I continue to believe that we’re in a new era – one where bankers will find that each intervention packs less punch than the one before it. So I think it’s much more likely that last Friday’s rally will prove fleeting, rather than the start of a major move higher.
So what’s your take? Can the BOJ fight back the forces of deflation and give stocks a lasting boost? Or is the ongoing oil-market turmoil the more influential force? Are there other fundamental market drivers you’re keeping an eye on that I didn’t mention here? Let me hear about it here at the website.
I hope you enjoyed Boris’ special update on China this past Friday. His insights are invaluable in these turbulent times.
(Editor’s note: In case you missed Larry Edelson grill CNBC contributors Boris Schlossberg and Kathy Lien on the small economy — and the currency — most likely to generate potential gains of up to 1,587% in 2016 … you can still watch it online. But it will only be online a short time! Click here to watch it now!)
Meanwhile, several of you took some time to weigh in on the latest manufacturing numbers and what they suggest about the true state of the economy.
Reader Chuck B. said: “When purses are light, we may be tempted by the latest model, but we can probably make do with what we have. Consumables, however, are needed to survive and function in society, and we put our scarce bucks into these first.
“So the decline in durable goods tells us that things are getting a bit tight for people and companies alike. Things aren’t perhaps critical yet, but individuals and purchasing managers are worrying a little. It means slower growth in the economy at least, and perhaps hints at something more down the line.”
Reader Warren R. added some personal observations, saying: “I’m a business owner of 30+years in small-town Grants Pass, Ore. I can tell you that since the financial panic of 2008-2009, economic conditions have not changed in any meaningful way. Our sales are still down, strip malls with empty store fronts remain so, and in conversations with fellow businessmen here, commercial activity, in general, is in recession.
“One minor bright spot is the return of home building, albeit at vastly reduced levels. So I find it impossible to invest in the stock market and feel at ease, leaving my money in good companies for the long haul and watching my account grow. I must now be very selective and have a much shorter-term focus.”
But Reader John pointed to a few reasons for optimism, or at least less worry. His take: “The fall of durable goods orders in December is probably a symptom of slowness in preceding months – not a sudden collapse in the economy. And since only around 25% of the U.S. economy is based on products in the first place, I would not use a slowdown in tangible product orders as a measure of the entire U.S. economy.
“Even if things are slow in manufacturing (and I bet they are), there is a lot of other business taking place in the service sectors, which are three times the size of U.S. manufacturing.”
Thanks for taking the time to weigh in, especially in light of today’s somewhat disappointing data on January manufacturing activity from the ISM. We’ll have to see if the manufacturing slowdown is a harbinger of problems elsewhere, or if the problems will stay bottled up there. Color me worried – and feel free to add any additional comments in the discussion section below.
The 2016 election process gets formally underway tonight in Iowa, with caucus votes slated to be held around the state. Democrat Hillary Clinton and Republican Donald Trump are leading in the polling, but not by much. So the results will be closely watched when they come in later tonight.
Troubled Internet search firm Yahoo (YHOO) is going to swing the corporate ax, cutting as much as 15% of its workforce and shutting multiple business units, according to the Wall Street Journal. CEO Marissa Meyer is under the microscope, with investors frustrated that her growth- and restructuring-plans haven’t yet paid dividends.
The commonwealth of Puerto Rico has gone public with its proposed debt-restructuring offer. The island wants to slash its onerous debt burden by 46%, to $26.5 billion from $49.2 billion, forcing bondholders to take sizable losses in the process. It’s unclear how much pain they’ll be willing to take, or whether the U.S. Congress will get involved with some kind of bailout as Puerto Rican officials would like to see.
The ISM Manufacturing Index came in at 48.2 in January, almost unchanged from 48 in December and slightly below estimates. That’s the fourth month in a row below 50 for the index, the dividing line between expansionary and contractionary territory. Sub-indices measuring new orders and production rose, but one that tracks employment dropped to its lowest level since 2009.
What do you think of Puerto Rico’s debt offer – too generous to creditors or not? Any thoughts on Yahoo’s latest attempt to right the ship? And how about the manufacturing data? Does it suggest recession risk is rising? Let me hear about it in the discussion section below.
Until next time,