FTSE rides BoJ disappointment

The BoJ has paved the way for a weak start to trade this morning, with the likes of the FTSE and DAX falling sharply at the open. However, much in the same manner as the BoE and ECB decisions, markets typically have the ability to look past short term disappointments to instead focus upon the bigger picture. With the chance of a BoE rate cut currently priced in ass 100%, we are not far away from a fresh bout of monetary stimulus in the UK, which would arguably provide more of a boost to UK markets than any action in Japan.

The fact that the BoJ undershot market expectations should come as no surprise given the lessons learnt from both the BoE and ECB meetings this month. The BoJ has used every weapon bar the helicopter and there is going to come a time when the BoJ takes stock to consider whether their policies are even making a difference. That time is next month, with Kurodas comments signalling a review over the effectiveness of policies such as negative rates. Could it really be the case that markets expected a further cut but instead were faced with the prospect of a hike?

Today’s session is all about GDP data, with the Eurozone, US and Canada all disclosing their Q2 figures today. The Eurozone GDP figure of 0.3% marked a halving of the 0.6% figure seen in Q1, driving fears that the region is in reverse. Arguably the US has been faring particularly well since the EU referendum and amid a desire at the Fed for higher rates, a strong reading today could pave the way for increasingly hawkish FOMC rhetoric.

Eurozone CPI managed to tick higher in July, with the headline reading rising to 0.2%. No doubt, the fact that both growth and inflation remain in the doldrums will be a driver of future easing expectations from the ECB.

Ahead of the open we expect the Dow Jones to start 40 points lower, at 18,416.