Get Markets Right

Guest writer: Ms. Malavika Belavangala

Last year it seemed that Japan’s sun was finally rising again. The Yen, seen throughout the world as a safe haven for investors, was one of the most stable and best performing currencies. The optimism with the election of the new government, and in November, Bank of Japan’s 10 trillion yen financial stimulus took the Yen to a 14-year high of 84.82 to the dollar. The political shift signified a positive picture for currency markets because new Finance Minister Hiroshida Fujii was a strong advocate for letting markets decide. This fuelled a rally for the Yen.

WILL POLITICAL CLOUDS DIM THE YEN?
Beginning of 2010, the Japanese government accepted an ailing Fujii’s resignation. Fujii, maintained the principle…

It will take another 10 years before I can use that head line again. It sounds very impressive but it just concerns the last days of this year.

The market activity will, as usual, be lower after the weekend until New Year but during the last days of this decade we have the chance to enjoy a few important numbers.

Here is what I am looking for the coming days:
From Japan, before 28th Dec the Dec business
conditions for small businesses is released. It’s almost a preliminary number, that alone makes it interesting though the survey itself is also worth to notice. Last month it was 43,0. Please note that the big business worsened in the period October to…

I am looking forward to an exciting day today with loads of numbers and then the FOMC meeting as a fine finish.

Just to mention the positive Japanese stocks this morning. The banking sector went up as it seems likely that the tougher capital rules will be delayed. The Japanese banks will probably get 10 years to adopt the new rules. Short term, it of course helps the profitability in the banking sector and give some relief (also the reason for the delay I assume). One of the reasons to tighten the rules was to protect the investor, but to give a 10 years deadline is equal to cancel them. Within the next 10 we will have had another crisis…

The Greenback continues to be fundamental weak in several ways. This was also highlighted earlier in the week where USD had some upside momentum but EUR/USD never came lower than 1,4825. If this is the current “strong” level for the greenback, then there is a good basis for a move towards 1,5500. Especially the US housing data this week showed stronger than expected October data. The headlines are more impressive than reality due to the downwards revisions of erlier data, though still an improvement that surprise me a bit. It should have helped USD but confirms the negative momentum right now.

Very important is the rising activity among  hedge funds and other position takers. They now go short USD…

Hot Topic – DPJ wins – Deep Pain Jammed LDP

The victory for The Democratic Party of Japan (DPJ) and their party leader Mr. Yukio Hatoyama is not a surprise. Though, after almost 50 years LDP government leadership of the second largest economy in the world, I certainly think the political change in Japan is a Hot Topic. This is a short view on what we can expect of political changes and what to watch out for as an investor and in corporate treasuries.

DPJ will surely try to outlive two headlines from their election campaign. One is to change the export dependent economy into a domestic demand economy. Second is to loosen the tight bands between the government and the large…

China – Oops! Minus 20% – time to get nervous ? Not yet

To be honest, the China piece required the deepest thinking, so you get some extra. When a stock market drops 20% within 2½ weeks, and furthermore in an economy that lives on a public boost and excess liquidity the thinking needs to be accurate. The drop was over a period long enough to be traded, and not just a couple of days with panic. This makes the set-back more remarkable.

The boost and the bubble

The equity market got a boost from the very famous anti recession package. It’s ok that this supported the stock market, but the bubble like rise since March is caused by the sharp lending increase…

Foreign Exchange – EUR/USD will reach 1,5000 this autumn

EUR/USD

It is long time ago since I have seen EUR/USD trading in such tight range as it has for some time. When we have these situations some players tend to sell volatility too late, it also happens these days.

Some investors have bought “Double-no-touch” options with barriers at 1,3900 and 1,4500. It means that EUR/USD has to trade within the defined range until maturity. Betting that something will stay within a range is equal to sell volatility. The EUR/USD volatility has gone down for a long time so from a volatility perspective some are selling at the lows. It feels like the typical trades that some are done when the range is about…

Global equities – The bulls are still in the lead – but for how long ?

The uptrend in global equity markets is still intact and some factors will be supportive in September. The very important gold digger mood among private investors, who believe in the V-shape recovery means a lot for the uptrend. This combined with plenty of funds to invest and professional money managers being behind going long stocks all in all creates a natural demand.

I am also behind the curve, as the frequent reader knows, I didn’t believe in the V-shape recovery, and still don’t. The consequence is, that I am forced to recommend to enter the market when it goes up despite I am uncomfortable with the…

23rd July China’s President Hu Jintao confirmed that the Communist Party wants to keep using the proactive fiscal policy and push domestic demand. The whole world regards more Chinese demand as the rescue for all of us, so it’s certainly worth to watch his comments.
President Hu claims that the jump in the yearly GDP growth from 6,1% in Q1 this year to 7,9% in the second quarter is caused by the Chinese stimulus package. He is actually right, because fixed-asset investments jumped a stunningly 33,5% – the main reason behind the higher GDP reading in the second quarter.

What should the investor use of Hu’s speech ?
Like any other country with a stimulus plan the aim is to maximise…

Nikkei 225 (9.648) Dax (4.644) FTSE 100 (3.989) Dow Jones (8.325) S&P 500 (898)

I agree with the upbeat market participants, that unemployment is the last number to peak, and also are different expectation indices showing clear improvements. But does it justify the V shape recovery that is priced in the equity market right now? I apologise, it would be most pleasant to say buy! Reality is as usual tougher.

Demand, unemployment and production capacity

Let’s start with the good one first. Demand is there, but it has changed. No secret that in the so-called rich countries demand has changed from “nice to have” to “need to have”. This has created the consumption drop together with a consumption stop due to…