The big story out last night was a Far East combo of central bank action and inaction.
Both were a surprise.
The action came from the Bank of Japan in their quest to stem the rise of their currency and to stimulate their economy.The BoJ started a programof quantitative easing that will see their balance sheet rise by $60 bln as they buy government bonds. They also said they would cut their benchmark rate from 0.1% to 0-0.1%.
The inaction came from the Reserve Bank of Australia, which kept their benchmark interest rate steady at 4.5% for the 5th straight month in a row. Although Reserve Bank Governor Glenn Stevens said that higher borrowing costs may be needed at some point, the central bank is clearly taking a precautionary step to allow for more time before they act.
Both events are indicative of a central bank environment that is worried and interventionist. They point to further bond market rallies leading up to the Federal Reserve's November 3rd meeting. With Pimco’s El-Erian stating that they believe the Fed will restart quantitative easing (QE2), the market isn't waiting for the action and has already aggressively bought fixed income securities in anticipation of lower rates.