Major averages advanced yesterday in action that is deemed to be a "follow-through" day as all of the major indexes were up sufficiently on higher volume. However, most stocks continue to trade under their 50- and/or 200- day moving averages, and look shell-shocked with wide and loose patterns so expect elevated levels of volatility to continue. It is important to remember that after the Flash Crash of 2010 there were three failed follow-through days as the indexes went into an extended three-month correction.
Futures are up more than 1% at the time of this writing as both Japan and China said they would both provide additional stimulus to their ailing economies. The stimulus comes in the form of corporate tax reductions in Japan. China meanwhile is doing a debt swap on 3.2 trillion yuan ($512 billion), which allows local Chinese governments to sell bonds to replace older, costlier debt.
Further, in its latest statement, the finance ministry of China said that as of Aug. 27 local governments had raised 1.82 trillion yuan ($291 billion) through debt issues. This is equivalent to 48% of the total quota allowed by the central government, suggesting that there is more room for local governments to raise funds.
The easing is fairly significant, especially given additional headroom for more easing out of China, thus markets jumped higher on the news as the trend of monetary easing has been reaffirmed by the second largest economy in the world.
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