Stocks Mixed as BOJ, ECB Decisions Loom

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Wall Street traders returned from the long holiday weekend with a lot to digest. Earnings season is in full swing. Commodity and currency markets remain extremely volatile. And a number of major catalysts, including the Greek elections on Jan. 25 and the Federal Reserve policy announcement on Jan. 28, are just ahead.

But first is the Bank of Japan decision on Wednesday morning and the European Central Bank decision on Thursday.

In the end, the Dow Jones Industrial Average gained a fraction, the S&P 500 gained nearly 0.2%, the Nasdaq Composite gained 0.4%, and the Russell 2000 lost 0.4%.

Initially, futures moved higher overnight on a better-than-expected Chinese GDP report and increased hopes that the People’s Bank of China could unleash more stimulus. China’s expanded at a 7.4% annualized rate, the weakest result in 24 years.

But renewed selling pressure on crude oil turned things to the downside, with crude losing 5.4% to settle at $46.39 a barrel. Analysts at JPMorgan warned that prices could touch as low as $38 a barrel in March as Iranian officials warning that their industry could ride out a slump to $25.

Focus is now turning to the increased demand for tankers as floating storage with major traders hoping to profit from a rebound in the months to come.

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Safe haven flows continue to boost Treasury bonds and precious metals. The iShares 20+ Year Treasury Bond (TLT) gained 1.3% to bring its total gain to Edge subscribers since it was added Nov. 21 to nearly 13%. Gold futures climbed 1.1% as they close in on the $1,300 level.

Precious metals stocks have been on the move in the big way, with the Feb $11 Barrick Gold Corporation (USA) (ABX) call options recommended to Edge Pro subscribers up 223% over the past week.

On the corporate front, Delta Air Lines, Inc. (DAL) jumped 7.3% thanks to a top- and bottom-line beat. Johnson & Johnson (JNJ) dropped 2.6% on weaker sales. And after the close, Netflix, Inc. (NFLX) was up 11.4% in after-hours trading on a 28-cent earnings per share beat.

Focus now turns back to the central banks, which are expected to take action amid deflation fears and economic stalling throughout Asia and Europe. Japan is still reeling from last year’s sales tax hike. And Europe is watching in horror as a debt-deflation dynamic sets in.

Both are in a tug-of-war to manage their currencies lower in an effort to win back export competitiveness — setting the stage for more volatility and surprises similar to last week’s 30% overnight surge in the Swiss franc after the Swiss National Bank suddenly dropped its currency peg.

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With so many balls in the air, investors can be forgiven for focusing on safe havens. For now, I continue to recommend a defensive focus on gold and silver — which are perking up as another wave of cheap money stimulus looks ready to be unleashed. I discussed a handful of stocks in the area in galleries here and here including Anglogold Ashanti Limited (ADR) (AU), up nearly 12% since Jan. 6.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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