13 JUNE 2013: ASIAN MARKET PLUNGES WITH STRONGER YEN

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The Dollar plunged to its lowest level in ten weeks against JPY at 94.81, while the Asian stock markets experienced one of its worst one day down falls. All the Asian markets ended in red territory with the Japanese Nikkei 500 index falling as much as 5.3 %. Tumbling Japanese shares accelerated the fall of the Dollar as Nikkei- investors continued to unwind earlier hedges against a weaker Yen. The Dollar has lost 8.6 % since hitting a four year high of 103,74 on May 22.

The latest developments demonstrate the gamble involved in Central Bank’s monetary easing. Investors have snapped up Japanese shares between mid-November and May, as a weaker Yen promised to fatten exporter’s overseas revenues. Now a stronger Yen threatens to do the opposite, leading to further sell-offs in the Nikkei. The tumults in Asia come on top of uncertainty about whether the US Federal Reserve (FED) will pare back its stimulus program buying bonds and treasury bills. Japanese bond selling is adding to the pressure on the currency.

The fall in Asian shares followed a weak session in New York. Dow Jones Industrial was down 0.84 % while the technology heavy Nasdaq lost 1.06. The Dollar lost 0.3 % against a basket of currencies, DXY, ending at 80.741 after falling below 80.651, a level not seen since February. The Dollar has lost 4 % since its three-year high on May 25th. Adjustments in overextended long USD positions rather than a changing perception of US growth and Fed outlook, seems to be behind the weaker Dollar.

Weakness in the Dollar saw the Euro climb to a near four-month high of 1.3370. Euro/USD trades now at 1.3356. It is difficult to explain the stronger Euro, the recession in the Euro zone taken into account. Recent polls show, however, that a majority of analysts believe that ECB will keep the interest rate at the present level. Optimists are also suggesting that the euro zone will return to modest growth later this year.

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28 MAY 2013: JAPANESE STOCKS FALL AS YEN SOARS

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The Japanese stock market continued to fall another 3,25 %, after Friday’s dramatic 7,32 % fall. The US dollar simultaneously witnessed its worst week against the JPY in one year, dropping from 103.50 to 101.09 Yen a Dollar on Friday.The Yen traded even lower yesterday, dipping below 101 at one point.

 

Western European equity markets have recovered from the downward shock at the end of last week. The French index jumped 0.97 % during yesterday’s trade, and Germany’s Frankfurt index added another 0.85 %. Nordic equities were strong while the British FYTSE lost 0.64 %. Developing markets also recovered with India jumping 2.47 %.

 

The Australian Dollar continues to fall, and trades just above 96 against the USD, on news that China has no intentions to stimulate growth at the expense of environment. The fall in the Chinese PMI last week had a further negative effect. Australia is dependent on coal export and Chinese growth. For Australia, its alarming that China is said to cut down on coal and encourage gas and solar energy to fight pollution.

 

The Euro/USD is strengthened and close to break through both the 21 and 50 days moving averages, helped by lower yields on Italian and Spanish bonds. The recent sharp downturn in USD/JPY is seen by analysts as a correction after huge amount of speculative Dollars gambled on a lower Yen. The strength of the yen is, however, temporary, and the weakness in the Japanese currency is bound to continue.
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Gold Rebounds As USD Weakens

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Gold and Silver rebounded strongly yesterday after the onslaught at the end of last week, and in Asia on Monday morning. Both the precious metals fell nearly 5 %. Gold trades at USD 1387 an ounce in Asia, 35 dollars up from the lows 24 hours ago. Silver trades at USD 22,70 rebounding from a low of 21.00 and reached USD 23, at the start of the Asian trading session. The cautious comments from representatives from the US Federal Reserve (FED) regarding the bond-buying stimulus, have weakened the USD.

In a statement on Monday, the President of the Federal Reserve in Chicago followed up last week’s comments from another regional FED president, that the bond-buying program might end abruptly in the autumn if, by then, the FED was sure that the labour market was on solid footing. Earlier, the FED put a 6,5 % unemployment statistic as the critical mark. The last published data showed a 7,6 % unemployment statistic. The aggressive monetary easing policies now also followed by Japan, has given global stock markets a strong boost.
US-stocks ended flat on Monday with indexes hovering near record levels. Concerns about a stop in bond-buying and a correction are influencing markets. Energy stocks and primarily solar companies soared. Dow Jones saw an intraday high at 15 391. S&P reached 1 672. Both indexes are up 17 % since January 1st. Investors are split between nervousness for a strong correction due to the sharpness and length of the rally, and those who are afraid to miss a continued rally.
European shares set a new five-year high for the fourth straight session on Monday, after positive indicators from The United States and Japan pointed to an improving global economic outlook. European blue chip stocks (Financial Times Eurofirst 300 index) was up one percent, which is the highest level seen since mid 2008. The positive US consumer sentiment data from Friday, the highest level seen in almost six years, is seen as especially encouraging. EasyJet and Ryan Air were among the biggest gainers.
The Japanese Yen tumbled yesterday after comments from its Minister of Economy, warning that the currency might have weakened enough. USD/JPY fell to 102 after Friday’s high on 103,22, but has rebounded to 102,22. Oil prices are keeping steady. Brent crude trades at USD 104,83 a barrel. FED Chairman Ben Bernanke’s statement to Congress on Wednesday will be crucial for the further development in currencies and global equity markets.

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25 April 2013: Nikkei extends its sharp rally

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The Japanese Nikkei index extended previous session’s sharp rally in early trade on Thursday. USD/JPY is steady on 99,41 and continues to lick at the magic 100 level. Euro/USD is 1.3046 up 50 points from yesterday when the Euro dipped under 1,30. The week picture inside the Euro zone points towards European Central Bank (ECB) interest rate cut next week. Both New York (NYMEX) and Brent crude are up. Brent trades at 102.18. Gold jumps 20 dollars to 1447 an ounce in Asian trading.

The Japanese ally is driven by expectations that yen weakness will spur strong earnings for local firms. Nikkei is up 0,3% to 167,10. The Asian Pacific, MSCI-index is also up 0,3%, basically on the belief that weak global economic data will encourage central banks to keep their monetary easing economic stimulus policies. US durable goods orders for March were disappointing, and weighed in on the strength of the dollar which is weaker towards Euro, Yen and other major currencies.

The growing expectations for an ECB interest rate cut helped offset the growth concerns highlighted by US durable goods. Durable goods orders posted its biggest drop in seven months in March. Together with a survey highlighting increasing pessimism among German business leaders in April, future forecasts are bearish. The sentiment in Europe is somewhat strengthened by falling bond yields in indebted countries like Italy and Spain. A possible end to the two months political deadlock in Italy, has further strengthened. A 37 years old has been appointed new Premier and the tenure for their 87 years old President is prolonged.

The US government will on Friday present its report on gross domestic product, GDP. The report is expected to show that the economy grew at a 3% annual in the first quarter rebounding from a 0,4 % gain in the final three months of 2012. For the current quarter an expansion of 1,5% is expected. Raising oil and copper prices indicate a turn towards more positive market sentiment. Gold which fell to USD 1322 after losing 250 dollars in two days, have recovered strongly to 1447.

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23 April 2013: Asia falls on weaker Chinese PMI

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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

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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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19 April 2013: Volatility reflects bearish mood

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Wall Street fell further yesterday after disappointing forecasts by eBay and other heavy weight US-companies. Present quarterly results raise increased doubt on the market’s recent strength. eBay dropped 5,9%, and Apple shares extended their slide from Wednesday breaking the USD 400 level. The S&P technology index fell 1,4% after two sharp declines earlier in the week. The volatility index, Wall Street’s fear index, gained 6,4 as a reflex of increased market nervousness. Other decliners included Morgan Stanley. The flagship bank fell 5,4% adding to the bearish mood.

As global policymakers started their G-20 meetings in Washington yesterday there is growing concern about currency fluctuations and volatility. Key central banks are printing money and pumping new liquidity into markets. This tends to create more speculative bubbles than working places. The yen (JPY) fell broadly Friday morning after the Japanese Finance Minister stated that Bank of Japan’s (BOJ) aggressive monetary stimulus is aimed at defeating deflation. USD/JPY trades at 98,53 with the dollar raising 0,4%.

As the G20 meeting ends today there are deep worries on what easily can develop into a currency war. In its semi-annual report on currency practices US put Japan on notice. Japan’s economic policies are watched closely to ensure that Japan is not aiming at devaluing the yen to gain competitive advantage. Competitors in South East Asia as South Korea are especially concerned. A rapid raise in dollar versus Yen at these level, seems, however, not likely. USD/JPY has already depreciated 20% since last November. A strong short term gain in USD/JPY might, however, occur after the G-20 meeting is over. G-20 is expected to confirm the pledge from February to avoid competitive currency devaluations.

Euro/USD recovered to 1.3068 after a sharp drop during yesterday. In a meeting on Thursday the EU agreed to move ahead with a system of winding down banks without changing EU law. This would give the EU bank resolution mechanism a stronger legal basis. The resolution comes after a stormy debate in the European Parliament where both the EU Commission and the European Central bank came under heavy fire for their handling of the Cyprus banking crisis. In an interview the EU Commissioner for Economic and Monetary affairs, Olli Rehn, stated that changes to EU-treaties are more a long term goal than a condition for a banking union to operate.

The recent plunge in gold prices have led to a rally in India and China to buy gold and silver coins and products. Retail buyers see the steep fall in prices as a buying opportunity. Gold trades at USD 1398 up from a bottom level on 1322 earlier in the week. Silver has rebounded from USD 22,76 to 23,46. It is, too, early, to say whether we are witnessing a more firm upward trend; or increasing prices shall be seen as a natural technical correction.

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18 April 2013: Risks assets broadly slips

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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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17 April 2013: Wall Street lifted by Gold and earnings

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US-stocks jumped more than one percent on Tuesday recovering after the worst fall since November. Gold prices rebounded from bottom level on USD 1351 and trades at 1379, but selling levels still persist. The US stock indexes were lifted by good earnings from Coca-Cola and Johnson & Johnson. The bullish sentiment was also helped by inflation data which reinforced expectations that he Federal Reserve will keep the stimulus. After two falling days, Asian stock markets are back in positive territory.

Gold prices jumped 30 dollar during yesterday’s session after falling 8,8% on record volume on Monday. Gold reached 1382, but is still under strong selling pressure as investors rushed to dump gold. Gold prices suffered their sharpest fall since the 1980’ies heightening fears among investors that precious metal’s decade long Bull Run has ended. Silver also fell 11% and trades at 23,42. Silver was trading above USD 35 just a few months ago, and reached nearly the mark USD 50 just two years ago.

The gold selling fever initiated in Cyprus where the government last week stated readiness to sell its gold reserves to help finance IMF and ECB demands for bail-out assets. Rumors indicated that other pressed Southern European countries would follow suit. Faltering European demand and weaker than expected Chinese economic data depressed oil prices. Brent crude fell to a nine-month low and reached USD 98 a barrel bottom. Brent has also recovered and trades again above USD 100.

The Japanese yen (JPY) eased in Asian trading this morning as it succumbs to new pressure as gold recovered. The historic plunge in gold prices coupled with fresh concern about China’s economic growth, saw some investors plunge back in yen as a safe haven reversing the downward trend sparked by Bank of Japan’s aggressive stimulus program. USD/JPY trades at 98,19. The USD has lost ground against the euro which has gained momentum after breaking through the stiff technical resistance at 1.3110/20. Euro is at 1.3173 as Euro bulls shrugged off a report on sharp April-fall in German investor sentiment.

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16 April 2013: Gold prices collapse

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Gold collapsed completely yesterday as precious metals plunged to the lowest levels seen in years. Gold trades at USD 1351 an ounce falling 250 dollar in two days. Silver fell from USD 28,25 ending yesterday at 22,50. Oil and other commodity prices sharply declined. Brent crude fell below the critical USD 100 a barrel level at USD 98,42. Stock market plunged as investors dumped risky assets and worries over slowing growth in China and US took hold. After a short spell of relief, Japanese yen, JPY, continued to slide against USD, before rebounding to 97,67 yen to a dollar.

The dramatic development in financial markets follows a worldwide rally in stocks in the first months of 2013 where daily new records on Wall Street have outpaced fundamentals. The monetary easing in the US, Europe and lastly Japan have injected huge capital into stocks without succeeding to create new employment. Risk markets have been rallying at a pace not in line with a tepid global growth recovery. Investor’s sell off of precious metals, commodities and shares might be seen as a last ditch effort to take some profit while markets evert to levels more in line with fundamentals.

Investors are reassessing their portfolio allocations for the second quarter of 2013 on that basis. In this perspective it seems likely that funds would be pulled out of the US stock market also taking European uncertainties into account. US debt might then back as a secure long term investment and reduce demands for an alternative safe-haven as gold. There are therefore valid question marks as to whether the deep plunge in gold will continue and that we are still far from a bottom.

USD/JPY recovered during Monday. The dollar fell to 95,67 yen. The Euro hit a low of 125 yen. Both USD and Euro have rebounded. Euro is trading at 126,75 yen. In a market dominated by steep falls and quick rebounds, EURO/USD has traded steady in an interval between 1.3050 and 1.31. In early Asian trading, the Asian-Pacific index, MSCI, has stabilized after a 2% drop in European and US markets yesterday. A bomb explosion killing two and injuring 130 people at the finish line of the Boston marathon added to the downward pressure on the New York exchanges. 

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