Market Recon Wednesday (BOJ/FOMC)

Good Morning,
Central Banking
Bank of Japan Policy Announcement.
                          The Bank of Japan changed gears a bit last night. There were no new additions to the central bank’s stimulus programs, though the BOJ did announce that they plan to keep their aggressive QQE program in place until consumer level inflation “exceeds” 2%. What they did add to the program was yield curve control. The most noticeable change to policy is the targeting of a specific yield for the Japanese 10 year note, which will be “close to zero”. Attacking the yield curve is not a surprise, as it was leaked to the media last week that something like this was in the works. Interest rates on the short end were left in place for now. Japanese markets seem to have reacted well. The Nikkei 225 roared to the tune of almost 2%, obviously led by the Financial sector. At first the Yen weakened, and the Japanese ten year, though already negative rallied. Both are well off of their overnight extremes. In fact, there really was nothing in this announcement that I see that would have caused such a knee-jerk for the Yen. That currency is back in the 101.50 range vs. the US Dollar after kissing 103 earlier.
14:00 – FOMC Policy Announcement.
14:00 – Federal Reserve Bank Economic Projections.
14:30 – Fed Chair Janet Yellen Press Conference.
                        The belief across the marketplace is that there will be no increase announced today for the Fed Funds Rate…. for a number of reasons. You may choose your poison, be it a much weaker Q3 for the US economy in general than was anticipated as recently as three weeks ago, the looming Presidential election, a recently stronger US Dollar, or simply the lack of consistent wage growth and the inflation that such growth would bring with it. Should rates already be higher for some time? Of course, but that’s not today’s fight. Today, we try to anticipate the Fed, and find a way to profit from what they do or say.
                        In all likelihood, the statement will show an increased willingness to raise rates before the end of the year (with the removal of a dot). I think you will see more dissents from a decision to leave rates where they are than we have seen in the past. Kansas City’s Esther George might not stand alone. She may be joined by up to two or three others. The only iron-clad dove left is Lael Brainard. To justify more hawkish posture, the economic projections made by the Fed will have to show a consensus increase from current positions for GDP (1.9 to 2%) for 2016, and Core y/y PCE Inflation (1.6 to 1.8%). Tweaking that last item (Core PCE) is imperative, leaving the forecasts where they are would be seen as dovish.
                       It is true that monetary conditions have already tightened. conditions have been getting tougher since early July. Still, if you get all of these hawkish leanings, there will be a reaction. You will see the US Dollar move higher against it’s peers. You will see a rally in the Financial sector, particularly Banks, Capital Markets, and Consumer Finance names. This should also provoke some selling pressure on the Utility sector, and on Gold. Treasuries, seemingly already having priced in some uncertainty may behave very interestingly, and will be a tough call to make, as they are also so very impacted by foreign central banking policies.
10:30 – Oil Inventories (Weekly): Expecting +1.1M, Last Week -600k barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -800k, Last Week +600k barrels. Crude prices soared last night after the API numbers were released. WTI is now trading above $45 a barrel. For the second week in three, the American Petroleum Institute reported a massive draw for both Crude supplies (-7.5M bar), and Gasoline stocks (-2.5M bar). Large gaps between expectations, and reality are nothing new to the Crude space. Should we see a confirmation of this API data today by the EIA, this will be taken as very supportive not only for the underlying commodity, but for the Energy sector as a unit.
Wednesday’s Earnings Highlights
Before the Open: KMX (.88), GIS (.75)
After the Close: BBBY (1.16), JBL (.25), RHT (.54)