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Stocks May Open Sharply Higher On Bank Of Japan Decision - U.S. Commentary


Stocks are likely to jump sharply at the start of trading on Friday, extending the upward move seen over the course of the previous session. The major index futures are currently pointing to a substantially higher open for the markets, with the Dow futures up by 169 points.

Early buying interest is likely to be generated by news of the Bank of Japan's unexpected decision to ease monetary policy amid concerns about the impact of falling oil prices.

By a 5-4 vote, the Bank of Japan's Monetary Policy Board decided to raise the monetary base at an annual pace of about 80 trillion yen. The bank previously targeted an increase of about 60 to 70 trillion yen.

"So much for the end of QE," said Julian Jessop, Chief Global Economist at Capital Economics. "The Bank of Japan's announcement today that it is stepping up its asset purchases is a timely reminder that not everyone has to follow the Fed."

"We would be wary of speculation that an outflow of Japanese money will lift bond markets elsewhere," he added. "Nonetheless, further QE in Japan should help to support equity prices worldwide and especially in the euro-zone if expectations build that the ECB will follow with full-blown QE of its own."

The markets may also benefit from a positive reaction to the latest batch of earnings news, with oil giants Exxon Mobil (XOM) and Chevron (CVX) moving higher in pre-market trading after both companies reported better than expected third quarter earnings.

Meanwhile, the Commerce Department recently released a report showing an unexpected drop in U.S. personal spending in the month of September.

The report said personal spending dipped by 0.2 percent in September after climbing by 0.5 percent in August. The modest decrease came as a surprise to economists, who had expected spending to inch up by 0.1 percent.

Additionally, the Commerce Department said personal income edged up by 0.2 percent in September following a 0.3 percent increase in the previous month. Economists had expected income to rise by another 0.3 percent.

Trading could also be impacted by the release of reports on Chicago-area business activity and consumer sentiment not long after the start of trading.

After ending Wednesday's trading modestly lower, stocks moved mostly higher over the course of the trading day on Thursday. The gains on the day more than offset the previous session's losses, lifting the major averages to their best closing levels in a month.

The major averages all closed in positive territory, although the Dow outperformed its counterparts. While the Dow surged up 221.11 points or 1.3 percent to 17,195.42, the Nasdaq rose 16.91 points or 0.4 percent to 4,566.14 and the S&P 500 climbed 12.35 points or 0.6 percent to 1,994.65.

In overseas trading, stocks markets across the Asia-Pacific region saw considerable strength on Friday following the Bank of Japan news. Japan's Nikkei 225 Index soared by 4.8 percent, while Hong Kong's Hang Seng Index jumped by 1.3 percent.

The major European markets have also shown notable moves to the upside on the day. While the French CAC 40 Index is up by 2.1 percent, the German DAX Index is up by 1.9 percent and the U.K.'s FTSE 100 Index is up by 1.1 percent.

In commodities trading, crude oil futures are sliding $1.02 to $80.10 a barrel after falling by $1.08 to $81.12 a barrel on Thursday. An ounce of gold is currently trading at $1,165.70, down $32.90 from the previous session's close of $1,198.60. On Thursday, gold slumped $26.30.

Among currencies, the U.S. dollar is trading at 111.88 yen compared to the 109.21 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2550 compared to yesterday's $1.2613.

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