Expect the Bank of Japan to Remain all in


Back in January, the Bank of Japan (BOJ) adopted a policy of negative interest on excess reserves. As with similar moves by its European counterparts, the new rate regime was designed to jumpstart growth and push inflation higher, by encouraging bank lending, business and consumer borrowing, and by weakening the currency.

Monetary Policy Takes Center Stage


The ongoing influence exerted by central banks over the direction of global markets was reinforced by the late selloff last week. Worries that the European Central Bank (ECB) will not be adding additional stimulus to support the fragile recovery in the Eurozone and that the Federal Reserve is poised to raise rates for a second time here at home, sent bond yields soaring and stock markets plunging on Friday. On the day, the S&P 500 skidded 2.6 percent, while the EuroStoxx 50 index fell 1.9 percent. In all, the MSCI World index fell 1.6 percent. And the selloff continued in early trading this week. The Nikkei was down 1.7 percent overnight, while stocks in Europe are lower by another 2.0 percent and U.S. futures are pointing to a lower open.

Message Received: Markets Prepare for Another Rate Hike


The Federal Reserve meets in two weeks and has gone to lengths to prepare markets for the possibility that the meeting could result in the second rate hike of this cycle. As recently as August 12, the fed funds futures market was ascribing just a 16 percent chance of that happening. By the end of August, however, through its various statements, and reinforced by evidence of firming economic activity, the Fed had succeeded in raising those expectations to a 36 percent probability.