This May Be Another Fireworks-Filled Start to the Day

The party continued for the second day in Asia and markets across the pond are also joining in on the celebrations.

Asian markets jumped hard and high, as China and Japan added to the good news that was received overnight from Germany.

Yesterday, Germany said that its imports and exports had hit a record high in absolute terms for the month of July, which set off the European and American rally.

Then this morning in Japan, Prime Minister Abe said that his government was set to lower the corporate tax rate by 3.3 percentage points over two years starting from April 1, 2016, the country's next fiscal year. 

Before you scoff at the 3.3 percentage points cut in tax over two years, remember that in the June 2015 quarter, Japanese corporate profits were 19.2 trillion yen ($159.2 billion) for the quarter. Factor in the cyclically adjusted P/E (CAPE) ratio of around 25x-27x, and that's a lot of potential overall market capitalization additions/gains (almost a trillion U.S. dollars worth, or a 25% addition to current overall market capitalization of the Nikkei) yet to come as the tax cuts work their way through Japanese corporate profitability over the next couple of years (I have used 10-year CAPE in my calculations).

Finally, in China, the Finance Ministry said that it would bolster its fiscal policies by boosting infrastructure spending and also speed up its tax reform process, giving a boost to Chinese markets as well.

As a result, the Nikkei soared by 7.7%, its biggest one-day gain since October 2008, and the Shanghai Composite closed up 2.3%, with the Hang Seng adding 4.5% on the day. 

Across the pond, the CAC is up 2.5%, the DAX has gained 1.8%, and the FTSE is higher by 1.9%. 

Our early S&P futures are indicating a slightly sedate open, up around 1%.

It sure looks like traders and investors will once again be watching from the sidelines this morning, if our futures hold up as indicated currently. The skepticism is palpable and everyone is waiting for the next leg lower. 

Of course, with the Fed meeting looming large next week, a healthy dose of caution/skepticism might be more than warranted, given the fact that our Fed seems to be stumbling and bumbling and it is only a matter of time before they fumble their mandate if they pull the trigger next week. 

Good luck into the open today and for the rest of the week. Looks like it will be another fireworks-filled start to the day. 

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