Stocks led by General Electric grew higher on Wall Street yesterday, as markets eagerly wait for US Federal Reserve’s , FED, policy statement to be published later today. Both Dow Jones Industrial and the technology heavy Nasdaq added 0.91 and 0.87 % respectively on expectations that FED, for now, will maintain its aggressive bond buying program, which over the last half year has boosted stocks. Markets are gambling on continued monetary easing in spite of recent data pointing to an improvement in the US-economy.
FED Chairman Ben Bernanke recently stated that the bond buying would be wound down when the economy has proven stronger. FED has put a 6.5 % unemployment rate and an inflation rate below 2.5 % as benchmark targets. An improving US economy seems, at present, capable of growing without monetary easing, but FED has not yet decided on the final exit strategy. It is expected that a tapering of the bond buying will begin in September/October.
Japanese stocks followed the positive lead from New York, outperforming the rest of Asia. Nikkei rose 1.1 %, helped by a softer Yen. USD/JPY traded at 95.28 down from the 94.50 level seen over the last couple of days. The Asian Pacific MSCI-index eased 0.3 % led by a 1.3 % fall in mainland Chinese stocks. Hong Kong and South Koreas were also lower. The MSCI index has lost 8 % since May 22nd, when Bernanke indicated to Congress that a decision to wind down bond buying would come in the next few meetings.
The question for many investors is whether Bernanke will succeed in convincing markets that any tapering is conditional on incoming data opposed to the foregone conclusion: tapering is going to come regardless. The uncertainty has convinced most currency and equity investors to retreat to the sidelines. The Dollar has moved marginally over the last day. EUR/USD trades at 1.3390 after reaching close to a four-month peak at 1.3416 yesterday. Commodities, oil and gold are trading at steady levels.
After a strong session in New York on Monday where Dow Jones, S&P, and Nasdaq all gained, Asian shares slide, as investors are nervously waiting news from the US Federal Reserve meeting and Bernanke’s news conference on Wednesday. The Japanese Nikkei and the Asian Pacific MSCI-indexes fell as did Australian shares which lost 0.9 %. The currencies are relatively steady with the EUR/USD at 1.3354 and USD/JPY at 94.84.
Oil prices continue to trade higher due to tension in the Middle East. Brent crude stands at USD 105.57 a barrel. The G-8 meeting amongst the world’s strongest developed economies, started their meeting in Northern Ireland yesterday, seeing Russia increasingly isolated in their support to the Assad-regime in Syria. US and European leaders simultaneously launched talks on the world’s most ambitious free trade agreements.
Markets are looking for the FED to clarify its outlook on its massive stimulus program when the US central bank concludes its two-day policy meeting on Wednesday. FEDs aggressive bond-buying program, along with other central banks accommodating monetary policies to promote growth, have provided liquidity which have been invested into higher risk assets as shares. Even modest tapering in monetary policies might, therefore, have had direct and unforeseen impact on the stock rally seen the last half-year.
Uncertainty over FEDs thinking has recently weighed in on the Dollar which has plunged to a four-month low towards a basket of currencies. The Dollar’s fall against the Yen has primarily been linked to speculators and investors cutting down on their Yen short positions after the Bank of Japan last week did nothing to quell a highly volatile domestic bond market. The fall in the Yen was sparked by a sell-off in Nikkei shares which have fallen 20 % from their peak at the end of May.
It is expected that FED, after its Wednesday meeting, will stress its commitment to continued stimulus and that any tapering will not signal lightening liquidity. At the G-8 meeting the Euro zone came under pressure to press on with a banking union. Japan was urged to follow up on central bank stimulus with structural reforms to tackle its budget deficits.
Robust US retail sales and a drop in the weekly jobless benefits claims had a positive impact on global stock markets yesterday and this morning. Japan’s Nikkei jumped 1.9 % recovering some of the sharp losses the last two weeks. This followed a strong session in New York. Dow Jones passed the 15 000 mark again, adding 1.21 %. The technology heavy Nasdaq index gained 1.32 %. The Asian Pacific MSCI-index rose 1.4 %. Also Chinese shares recovered.
Volatility is still high in the currency markets. Better than expected economic data calmed global markets,after the last few days bruising sell off. Investors remained, however, nervous ahead of next week’s Federal Reserve, FED, policy meeting on June the 18th-19th. The Dollar lost at one point more than 1% from early gains against the Yen, and stands at a four-month low against a basket of major currencies, DXY. USD/JPY is hovering below 95 at 94.92 Yen to a Dollar. Euro/USD is at 1.3349.
The positive data yesterday appeared to have brought some temporary relief to markets rocked by speculation on whether FED is going to taper its monetary easing. The strong rally in global equity markets over the last half year, has been driven by FED’s bond buying scheme. There is an open question as to how the stock markets would be affected by a discontinuation in monetary easing, which other central banks have also copied. Currencies are most likely going to continue to be volatile until stability returns to equities.
Yen short and Dollar long positions have been built up to excessive levels over the last few weeks, and have contributed to the volatility in USD/JPY. Selling of the Yen was overdone and it seems that the latest market turbulence might have filtered out much of that excess. USD/JPY at 95 seems to be reasonable for now. The British Pound Sterling, GBP, is gaining ground against the USD, trading above 1.57. Oil prices are up on US- growth expectations triggered by the latest data. US crude futures stand at 96.70 and Brent trades at USD 104.73 a barrel.
The Bank of Japan (BOJ) did not intervene in the volatile bond market and kept monetary policy steady at yesterday’s meeting. The decision strengthened the Yen. USD/JPY trades at 98.42 EURO/USD, which started the week at 1.3193 and has climbed 80 points to 1.3272. The Dollar, which hit a 4-1/2-year peak against the Yen of 103.74 last month, has since fallen.
Asian stocks sagged to a fresh 2013 low due to the Chinese growth worries and continued uncertainty over US monetary easing and its bond buying program. The Nikkei N225 ended 0.7 % down, while USD/JPY declined 0.4 %. The South Pacific MSCI-index shed 0.9 % and fell for the fifth straight day in a row. In New York, Dow Jones ended slightly down at 15. 238. Nasdaq was in positive territory, 0.13 %, after a 1.71 % gain for Intel, which was the winner of the day.
The international rating agency, Standard & Poor’s, raised the US economic outlook to stable from negative, from the positive jobs data presented last Friday. The upgrade will contribute towards keeping the speculation about an eventual softening of FED’s strong commitment to quantitative easing alive. Both global equity and commodity markets have recently been jolted by FED stimulus concerns, slowing growth in China, contributing towards the continued recession in Europe and big turbulence in the Japanese stock and bond markets.
This volatility clearly demonstrates the weaknesses of monetary easing. It boosts liquidity and exacerbates moves in the financial markets without having a real impact on the real economy. Abenomics led to a strong stock rally and a steep fall in the Yen. Over the last two weeks Nikkei has lost 20 % and USD/JPY is up 5 % . Most analytics continue to be bullish on USD and stress that long-term capital flows are moving into US corporate bonds. This will strengthen the USD.
The Dollar plunged against the Euro, Japanese Yen, and other currencies as investors reduced bets on the greenback on concerns that today’s US jobs report will disappoint. Euro/USD trades at 1.3262. American stocks fell in tandem with a weaker USD, but rebounded to end in positive territory. Dow Jones added 0.53 % to climb back above the 15.000 level. Nasdaq gained 0.66 % to 3 424. The changes seem to be technically driven by psychological factors.
A poll amongst economists expects 170 000 new jobs could’ve been added to the US economy in May with an unemployment rate of 7.5 %. Fear of a weaker than expected job report prompted, however, investors to unwind bets on a stronger Dollar that had been profitable for months. Gold prices, which have been under strong pressure for months, suddenly rose 1 percent to USD 1412 an ounce as investors sold long positions on the Dollar.
The Euro gained after the European Central Bank, ECB, left interest rates unchanged. ECB President, Mario Draghi, stated that further monetary support was unlikely in the near future. ECB has kept interest rates at a record low of 0,5 % waiting for a turnaround in the Euro zone. Bank of England have also chosen to leave their loose monetary policy unchanged. British Sterling, GBP, has jumped against the Dollar at 1,5612 and gained substantially during the last few days from low 1.51 levels.
Concerns that key US job data will disappoint sent the Japanese Nikkei into bear territory in Asia this morning. The Nikkei plunged 1.9 % to a two month low. Nikkei has lost 20 % from a five-and-half-year high, just two weeks ago. Other Asian stocks failed to capitalize on overnight gains in Wall Street. The Asian Pacific MSCI-index fell 0.6 % to its lowest level since November. The fall in equities seem to indicate a stronger appetite among investors for safe haven bonds. The yield on U.S, German and Japanese bonds have risen recently.
Oil prices are higher on the back of a weaker Dollar. Brent crude trades close to USD 104 a barrel, up from the USD 100 mark earlier in the week.
The positive sentiment in global equity markets received a new boost on better than expected Chinese trade data. Asian shares rose to their highest level in two years after China reported a 14,7% export increase in April. Imports were up 16.8% with a trade surplus of USD 18,16 Billion for the month. The Chinese data comes on top of new Wall Street highs with Dow Jones closing above 15 000. In Germany industrial orders showed unexpected strength last week and pulled the Dax index into record territory.
The Australian Reserve Bank became yesterday the last central bank to cut interest rate creating an opening for parity between Australian and US dollars. Share prices are helped by decreased bond returns. The cut in interest rates play into the hands of equities. The Asian Pacific MSCI-index rose 0,8% and reached the highest level since August 2011. Global market sentiments were helped by strong quarterly results by one of the world leading banks, HSBC, and a profit jump for the US Disney. Cut in the labor seems to be the driving force behind HSBC’s result.
The Chinese trading numbers are likely to ease recent concerns about weakness in the recovery in the world second-largest economy. Doubts remain, however, over real demand in China, and the accuracy of their figures. Oil and commodity prices are trading firmer after the Chinese data. A successful bond trade in Portugal supported the upbeat mood and strengthened the Euro. Euro/USD is steady at 1.3080. There is still no breakthrough in USD/JPY which sticks to the 99 yen a dollar level. USD/British sterling, GBP is trading at 1.5479 slightly down from yesterday.
Gold continues to be under pressure. Gold lost one percent during yesterday’s trade. It has recovered to 1455. Gold backed exchange traded funds fell to their weakest level since 2009 indicating that investors money is leaving gold for booming stock markets. This suggests that the super cycle of commodities might be over and that tough times might lie ahead especially for metals. Analysts see that commodity prices in the future probably may be more determined by normal supply and demand balances than by speculative money flows.
Gold traders take an opposite opinion. The present equity boom is driven by low interest rates and central banks money printing. This will create inflationary pressure and challenges for the market system as witnessed by the financial crisis in the autumn of 2008. In such an environment investors will still use gold and precious metals as a hedge. Gold bulls, therefore, stress that a rebound to the USD 1700 level is most likely also in a shorter term perspective.
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US and Asian stocks reached new record highs as the Japan’s Nikkei average soared 2,8 % on Tuesday morning. For the first time since June 2008 the Nikkei broke above 14 000 as the market played catch-up from an extended holiday. The strong US jobs data eased concern over the health of Japan’s biggest export market. Japanese exporters as Toyota, Honda and Sony led the rally jumping more than 3 %.
In the US the S& P led by Apple and financials pushed further above 1600. The S & P has gained 13,4 % since the beginning of the year. Decent earnings together monetary easing and low interests rates have helped the stock markets to new records. As long as the world’s leading central banks are providing markets with liquidity the stock rally is most likely going to continue at least in the short term.
Asia is today focusing on Australia where markets are waiting for the Central Bank of Australia’s decision on interest rate. Analysts are split on whether the interest rate would be lowered by a quarter point to a record low of 2,75 %. A jump in stock prices are then predicted. Australian stocks fall 0,4 % prior to the central bank’s verdict. The Asian Pacific, MSCI-index, was as the Korean Kospi slightly down after big upward jumps on Monday.
In the currency market the Euro is on the defensive Euro/USD trading at 1.3077. The head of the European Central Bank (ECB), Mario Draghi, stated yesterday that ECB is watching economic data and is ready to take further action if needed. The upcoming German elections in September make changes in the austerity policies unlikely in spite of Germany being under pressure from other EU-members.
While gold, USD 1465, is losing ground on continued outflows in holdings at the world’s largest gold backed exchange traded funds, SPDR Gold Trust, crude and copper are steady. Brent crude continues to trade above USD 105 a barrel.
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Growing doubts over the health of global economies pushed Asian stocks lower on Thursday after disappointing US economic data pushed Wall street down. Dow Jones industrial fell 0,92 % adding to doubts over the strength of the world’s biggest economy. Slow Chinese demand puts new question marks on China’s economic recovery. The European Central Bank (ECB) is meeting later today. ECB is expected to cut interest rates down to a low of 0,5 % in an effort to take the Euro zone out of recession.
The Asian Pacific MSCI-index fell 0,5 percent with Australian shares leading the decline. Miners dragged the AXJO index down 0,8 % on fears of lesser Chinese appetite for commodities. The Chinese PMI (Purchasing Managers index)fell in April, but the upward trend continues. It is, however, fragile and has lost momentum due to signs of pausing in the US economy. Market sentiments are split between growth prospect worries and support for sustained monetary stimulus.
There are also worries that a weaker US economic growth may prompt profit taking in Asian equities. Asia has strongly outperformed earlier this year, USD/JPY is trading steady at 97,24 unable to break through the psychological important 100 level. Some analysts expect that yen is going to continue to depreciate after a short breathier. A US trading at 110 yen towards a dollar is perceived.
The dollar has recovered from lows against a basket of six major currencies, DXY, but stayed at lowest levels since late February. The dollar weakness lifted the euro to a two month high of USD 1,3243 on Wednesday. It trades steady around 1.3178 in the opening sessions in Asia. Weak credit demand in the euro zone shall most likely lead to further contraction in the region. This points along with disappointing German PMI in April towards an interest rate cut when ERCB meets later today.
Growing unemployment in the Southern European periphery of Europe and slower growth in Germany, have led to a renewed debate on the austerity measures carried through by The ECB and EU-commission with Germany as the driving national engine. A leading critics of the austerity measures, the economic Nobel laureate, Paul Krugman, says in a recent article that the austerities is far from any sound economics and purely dictated by leading bankers and politicians political prejudices. The results are catastrophic for the economy as well as human beings.