Nikkei-S&P Convergence Update
Two days into the proposed Nikkei-SPX convergence, the ROI stands at about 4% after last night's ramp in the Nikkei and today's plunge in the S&P. Granted, it is disingenuous to not account for the today's Nikkei session which is why absent a 4% down day in the Tokyo index, the trade should still be profitable. We are still confident that the BOJ will be forced to act to stop the Yen surge, unless the most recent PM wants to have a tenure even briefer than that of his predecessor, at which point the convergence will outperform further toward the goal of 10%. Regardless, those who believe deflation has a firmer foothold in Japan may be wise to unwind. The flipside is that the US will be unable to pursue further QE steps until September 21 at the earliest when the next Fed meeting will be held. Which is why the trade can likely be held for at least a few more weeks without any adverse catalyst on the horizon.