18 April 2013: Risks assets broadly slips

Risks assets broadly slipped on Thursday following overnight drop in US and European equities on fears for global growth. Oil prices have dropped substantially. Brent crude fell two dollars trading below USD 98 a barrel. Iran, has asked for an emergency meeting in OPEC, the organization for oil producing states, to discuss the low oil prices as non-OPEC United States is pumping 7,2 million tons a day. This contributes to the imbalance between market demand and supply. Gold dipped further as capital flow out of gold-backed-exchange-traded funds continues.

US-Stocks fell in a broad market sell-off yesterday. The decline in stock prices was led by a sharp drop in Apple which tumbled 5,5% to USD 402,80. Apple has fallen USD 250 since its peak last autumn. A key chip maker, Cirrus, simultaneously presented a disappointing revenue forecast. This together with the slowing demand for Apple products, fueled market worries about a weakening demand for iPhone and iPad. The financial sector was also hard hit by weaker than expected results from Bank of America.

Wednesday’s losses represented the second day of big sell-off during this week. It adds to fears that the market is starting the pullback analysts have been speculating in for months. Expectations have outdistanced economic fundamentals. Monetary easing has additionally injected fresh speculative capital into equities. This development has led to stock rallies without roots in the real economy creating new bubbles.

Investors’ optimism have been based on expectations of a stronger economic growth in China and a recovery in the US. There are positive signs in both markets, but the world economy is still dragged down by an ever deeper recession inside the Euro zone. The plunge in gold and metal prices and a simultaneous sell-off of stocks bear striking similarities with the situation in 2008 where stock markets were running off from realities to end with a hard landing. Bankers’ wild speculations contributed to the misery which led to a financial crisis in the second half of the year where the liberal orientated economic market model was put at serious risk.

Is history in the process of repeating itself?

Nervousness and risk aversion has also plaid into the currency market where the euro come under pressure. Euro/USD fell from Wednesday high on 1.3172 to 1.3043 on talk of more monetary easing by the European Central Bank. USD/JPY trades marginally up at 98,03 indicating a continued slid in the yen and a new test on the symbolic 100 yen a dollar level. The Australian dollar is steady after trimming earlier losses due to the fall in gold and metals and a weaker growth in China.

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15 March 2013: Stock market growth smile on US dollar

  The Dow Jones Industrial rose for a 10^th straight day in a stock rally not seen since 1996, and ended up 0,6 % at 14 539. This followed a strong session in Europe.  In Asia stocks rose again this morning after two loss making sessions. The rally was spurred by new US- labour market data showing a fall in the weekly numbers of people applying for unemployment benefits. The data reflects  that the American economy is steadily improving.  A raft of recent data from retail sales and manufacturing to employment and housing have shown that the US  economy is gathering steam.

 In contradiction to former historical stock rallies where the green buck was used as some kind of a life jacket, the USD has this time benefited greatly on the stock market’s surge to new highs and improved economic data.  Against a basket of currency, DXY, the dollar has reached a seven month high. Since January USD/JPY has jumped from 86,67 to over 96. Pound Sterling, GBP, has fallen from 1.62 to a bottom of  1.4832 earlier this week. The moves suggest that the dollar has entered a multi-year bull cycle where the dollar has outperformed nine of the major G-10 currencies.

 Political uncertainty in Italy has re-ignited  fear about the  euro zone’s debt crisis and put new pressure on the Euro.  Weak economic growth and  prospects of aggressive monetary easing in Japan and Britain have driven the yen and GBP to multi-year lows.  Spending cuts in Washington could for sure damper US economic growth and the FED has further pledged to keep interest rates low for the foreseeable future.   But capital flows continue to rotate in the favour of US-assets and  strengthen both the US economy and the dollar.

The dollar strength against JPY and Euro  took a little breather  on Friday. USD/JPY trades at 96,03 down from the peak of 96,71 on Tuesday. If the Bank of Japan (BOJ) follows up on its  declared strong monetary easing policies, USD/JPY is likely to trade in a future range between 95 – 105. If BOJ disappoints the trading range is expected to be 86 – 96. Euro/USD was in the short term  strengthened by a positive Spanish bond auction on Thursday. It  trades at 1.3010. Pound sterling and Australian dollar were yesterday’s winners. The Aussie added another 0,8 % after another  one percentage jump on good employment numbers on Wednesday.

 British pound surged yesterday as investors scrambled to cover short positions made on expectations of more quantitative easing by the Bank of England. The Bank’s Governor stated that GBP according to his opinion is properly valued and not seeking further depreciation.  GBP was helped by rumours that Qatar is planning to invest billions of GBP into British infrastructure projects. The GBP yesterday’s one % gain is the biggest seen in seven months.

 These short term gains are nevertheless not expected to  have any major medium or long term  impact.  The long medium and long term outlook point towards  a stronger USD both in relation to Euro, JPY, GBP and most other currencies. These forecasts for Euro/USD point to  a new test on former bottom levels 1.19 – 1.20. It is also predicted that GBP/USD can drop as low as 1.35.  The corridor range 95 – 105 is the most likely medium term scenario for USD/JPY.

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12 March 2013: Asian stocks higher on record Wall Street

Wall Street’s record close overnight bolstered most Asian shares on Tuesday. Growing confidence in the US economy underpinned investors risk appetite. The Japanese yen slipped to fresh lows on speculation over imminent monetary easing. USD/JPY stands at a new low of 96,51. JPY is losing ground also against Euro and Australian dollar. Euro/USD is trading at 1.3027.

The US stock indexes extended its winning streak to seven sessions and touched its highest intraday level since October 2007. Dow Jones closed at a record high 14 447. The MSCI-index for Asia-Pacific also continued up led by financials echoing US trading where finance were the best performing sector. Also Australia, Hong Kong and Shanghai were up as the Japanese Nikkei. The weaker yen is giving exporters a welcomed boost and Nikkei was up for the eight day in row.

The dollar index, DXY, has benefited from last week’s strong labor data, and continues to jump against the yen. Analysts stress that dollar/yen may take a pause in the second quarter when seasonal weaknesses typically slow US economic indicators. They see a possible USD/JPY downside on 92 yen to a dollar with strong technical support around the 90 level. For now the trend is clearly towards a continued weaker yen.

Euro/USD is steady at 1.3030 level. The Euro is under pressure from Italy’s inconclusive last month elections which are weighing in and delaying the country’s fiscal reform efforts. Gold has edged to 1583 marginally up from yesterday. In new York US crude, NYMEX, traded up 0,2% at USD 92,21 a barrel. Brent crude trades up from below 110 to USD 110,20 a barrel.

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