09 MAY 2013: STOCKS RALLY AS MAJOR CURRENCIES LOSE DIRECTION

Global equity markets continue to rally as major currencies have lost a clear direction. Encouraging global data and Wall Street’s extended record rally, took Asian shares to a new two-year peak Thursday morning. Australia presented strong unemployment numbers. While 50 100 new jobs were added in April, the South Korean central bank made a surprise 0,5% interest cut lowering the interest rate to 2,5%. These steps further cemented the positive mood in global markets.

Lower interest rates and central banks increased money printing have created spare liquidity which moves into stocks. The Japanese monetary easing brought the Nikkei index within striking distance of a five-years highs outperforming its global peers. Stocks remain the favored asset class among investors as monetary easing depresses return on bonds. Unclear prospects regarding the world economic growth weigh negatively on commodity prices. Commodities trade without any clear direction with precious metals temporarily falling out of favor with investors.

In contrast to the clear uptrend in global equities major currencies have lost direction. This is the case with Japanese yen, JPY, which depreciated continuously since November last year and depreciated and lost 20 – 25% against most currencies. The last weeks USD/JPY has traded in the interval between 97 – 99 yen a dollar unable to make a major breakthrough and jump above the psychological 100 level.

Investors which made huge profits betting on big cash currency positions earlier this year go into equities which regardless of economic fundamental outlooks are strongly buoyed by monetary easing. As long as central banks keep their accommodative stance the uptrend in stocks would continue. Stocks were also helped by the upbeat US unemployment figures last Friday, Chinese trading data and more promising prospects for the German industry.

In spite of the economic outlook for the Euro zone continues to be dismal, the Euro remains resilient. Euro/USD trades at 1.3160. The economic problems in Europe are indeed serious, but traders have recently burnt their fingers on going short on Euro and stay away. The Euro seems to have discounted eventual bad news, and the balance of payment and real interest rates are no lower than anywhere else. There is no clear conviction among traders as to the timing of Euro weakness. In this financial climate oil prices are keeping up steady. Brent is hovering around USD 104 a barrel. Gold price which fell to USD 1449 on Tuesday, has picked up and trades at 1474.

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23 April 2013: Asia falls on weaker Chinese PMI

Asian shares and other riskier assets lost ground on Tuesday after a preliminary reading showed weaker Chinese manufacturing growth in April. HSBC’s Purchasing Manager’s Index, PMI, fell in April and added to concerns about global growth prospects. HSBC’s report is the first economic indicator for the second quarter of 2013. It follows weaker-than-expected first quarter GDP (Gross Domestic Product) growth and a contraction in export pointing to fragile global demand.

April PMI-numbers fell to 50,5 from 51.6 in March. The numbers are nevertheless higher than February’s 50,4, and in no way disastrous. The April PMI reinforces, however, market concerns about a stagnating and slowing Chinese economy. Stock market rallies especially in the United States have been based on expectations of a stronger US recovery and Chinese growth. The latest PMI takes some of this belief away and is a strong indication that the stock market rally might be over for now.

Both Hong Kong and Shanghai stocks fell. The Shanghai SSE fell 1,4% and the Japanese Nikkei slipped 0,1% after surging up 2,2 percent on Monday; close to a five-years high. After USD/JPY reached 99,95 on April 11, a breakthrough of the 100 mark has been expected. Instead the USD fell back to 98,60 yen after reaching 99,90 in early trade yesterday. Weak US-housing data weighed in on the strength of the dollar. USD firmed against the Euro trading at 1.3043. Comments from the European Central Bank, ECB, suggest the bank might consider lowering interest rates in light of mass unemployment and low inflation.

Gold has recovered strongly from last week’s tumble trading at USD 1427 an ounce. More gold outflows from exchange-traded funds stress, however, a weakened confidence in the precious metal and possible further drops. While gold is slightly up from Monday, silver is losing ground. Copper prices continue to fall with 0,6% on the London metal exchange. Brent crude stays above USD 100 a barrel, but crude futures are pointing down.

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22 April 2013: Gold rebounds; USD/JPY 99,84

Last week was dominated by an extraordinary fall of USD 250 fall in gold prices and heavy losses in other commodities. Gold demonstrated, however, strong resilience and staged a rebound. Gold is hundred dollar up from the bottom of USD 1322 an ounce last week. Copper is still weak. While Brent crude again trades above USD 100 a barrel. Strong retail buying in Indian and China strengthened gold which was seen as a buying opportunity. Gold reached the USD 1400 mark on Friday and trades at 1422 in Asia. Many investors have kept their strong faith in gold on expectations of high inflation and governments being unable to deal with it, and continues to buy gold.

The G-20 meeting in Washington ended on Friday without any conclusive results. Since 2010 the group has turned from being a cohesive group of the world’s most important economies into a body that spends hours of negotiating the punctuation in a communique. Japan was the focus for attention. In spite of the fact that the Japanese yen, JPY, has depreciated 20% in relation to most currencies since November last year, G-20 accepted Japan’s explanation that its monetary policy is aimed at price stabilization and economic recovery. Its strong monetary easing does not intend to manipulate its exchange rate.

As expected JPY as a result of the meeting, continued to slide in Asia this morning. USD/JPY reached 99,84 and is again licking the symbolic 100 level which most likely is going to be broken during the day encouraged by the Group of 20 endorsing of Japan’s reflationary policies. Following the meeting, players feel comfortable selling the yen further. Asian shares inched higher, but investors remained wary of volatility given the uncertainty of global growth prospects. Global stock markets might be on the verge of a selloff.

The International Monetary Fund, IMF’s forecasts for the G-20 meeting were out of date no sooner than it was presented. Weaker US labor market figures and Chinese economic growth in the first quarter, make it necessary to downgrade growth forecasts for the world economy. The G-20 meeting also given another stark warning that economic forecasts is not any precise science. The Harvard economists Kenneth Rogoff and Carmen Reinhart’s have since 2010 postulated that when debt reaches 90% of Gross Domestic Product, GDP, growth automatically fell. This postulate has been the basis for government’s austerity measures especially in the Euro zone.

An Excel error put serious question marks with the evidence the economist have built their postulate on. For the first time in years it thereby is possible to put questions with postulates presented as science. The austerity measures in Europe are as most other economic theories are based on political attitudes. When such postulates end up in mass unemployment and social misery it might be right time to take a break and ask whether the austerity measures resulting in mass unemployment and social misery are the right prescribed medicine.

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11 April 2013: Wall Street lifts Asian shares

Wall Street’s record closing and optimism on the Chinese economy lifted Asian shares in early Thursday morning trading. The Japanese yen continues to be under strong pressure. USD/JPY trades at 99,60, a hair’s breadth within the 100 level. Yen continues to test fresh lows against major currencies as the effect of the Bank of Japan’s (BOJ) bold monetary easing takes hold. The South East Asian Pacific index, MSCI, gained 0,8%, while the Japanese Nikkei jumped 1,3%.

The new Governor of BOJ has proven that is serious regarding a 2% inflation level bringing fresh impetus to a stagnating, deflationary economy. There are questions whether this is enough. Monetary measures ought to be followed up by a strong restructuring of the Japanese economy especially steps to encourage the private bond market. Japanese bonds have fallen on BOJ measures, and Japanese investors are said to be moving funds into foreign bonds.

The last published minutes from the Federal Reserve (FED) Board’s meeting gives new stimulus to the US dollar. According to the minutes FED officials have debated to slow down the pace of asset purchases or end them later this year. The Dow Jones industrial average and the Standard & Poor’s 500 gave also impetus to a stronger dollar. Both indexes ended at historic highs on Wednesday, led by cyclical shares on China’s rosier demand outlook. Chinese imports have increased significantly during the last quarters. Higher-yield commodity currencies also gained ground on the Chinese data with the Australian dollar jumping to 1,0553 Against the USD.

A report published by the European commission yesterday gave a bleak picture of the economic development inside the euro zone. One of the EU-newcomers, Slovenia, has been a stark warning to put his house in order. The banking sector’s debt ridden and suffers. Slovenia might therefore be the next in line to follow Cyprus. The EU Commission also points to serious weaknesses in the banking sector in Italy, France and Spain in and reminds that the European banking and financial crisis might only be in its beginning.

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