So far, the week is off to a mixed start with most indices recording slight drops. A few indices have pushed ahead with the Shanghai index gaining a solid .85 percent. Meanwhile in Japan the Nikkei 225 gained .23 percent, as the country continues its quantitative easing program.
Chinese vs Japanese stock markets
The Shanghai Index’s solid gains were likely spurred on by news that China’s trade surplus hit a new high, widening to $49.8 billion dollars. News about the trade surplus, however, should be taken with a grain of salt by Chinese investors. While demand from the U.S. and elsewhere is increasing, there was also a slump in imports due to slowing domestic demand.
Meanwhile, Japan’s GDP has shrunken by 7.1 percent in the second quarter, largely due to a new sales tax. This sales tax is discouraging consumer consumption, which is a huge portion of the economy, but over time consumption should recover.
Quantitative easing refers to the creation of new money by a Central Bank. The bank then uses the money to purchase assets. As the money supply increases, the value of the given currency tends to decline. This sends investors fleeing the given currency, favoring stock markets and other assets instead.
European and Japanese stock markets to be be pushed upwards
We mention this at length because the ECB unveiled its own stimulus package last week, which included a smaller scale asset purchasing program. Both the euro and yen should continue to gradually lose value, and their stock markets should be pushed upwards.
So far, however, most European indices are in the red, but the losses have been relatively minor. The UK FTSE 100 closed down .40 percent, while the Italian FTSE MIB is down .28 percent. The French CAC 40, meanwhile, is down .21 percent while the German Dax is actually up a negligible .08 percent.
UK markets affected by Scottish independence
The UK FTSE has had a particularly tough day owing to a poll showing that voters in Scotland are actually leaning towards independence from the United Kingdom. If Scotland were to vote for independence, it would essentially cleave Great Britain in half.
Turbulence around the world goes a long way in explaining why United States markets are also off to a mixed start. As of 11:30am the DJIA was down .08 percent and the S&P 500 was down .21 percent. Neither number should have investors worried. The NASDAQ has managed to gain .12 percent.