it has been a rather quiet session, which saw Japan modestly lower dragged again by a lower USDJPY which hit fresh 17 month lows around 170.6 before staging another modest rebound and halting a six-day run of gains; China bounced after a slightly disappointing CPI print gave hope there is more space for the PBOC to ease; European equities rose, led by Italian banks which surged ahead of a meeting to discuss the rescue of various insolvent Italian banks, while mining stocks jumped buoyed by rising metal prices with signs of a pick-up in Chinese industrial demand.
Things are going from bad to worse for the efficacy of the grand - and failed from the beginning - experiment known as Abenomics. As Bloomberg reports, Larry Fink's Blackrock has changed its stance on investing in Japan, and joins Citigroup, Credit Suisse, and LGT Capital Partners, the $50 billion asset manager based in Switzerland in their decision to head for the exits. Ironically, Blackrock's decision comes only a few months after blogging about "The Case for Investing in Japan", in which they explicitly cited increased demand for Japanese stocks.
Earlier today, Japan's government spokesman Suga came as close as possible to admitting that there was in fact a tacit "Shanghai Accord" agreement when he said that the Group of 20's agreement to avoid competitive currency devaluation "does not mean Japan cannot intervene in response to one-sided currency moves." It got better: in an interview with Reuters Suga added that Japanese Prime Minister Shinzo Abe's comment to the Wall Street Journal last week that countries should avoid "arbitrary intervention," was misunderstood and does not rule out intervention for Japan, Suga said.
The US Dollar Index is sitting at 94.62, just above a critical support zone at 93-94. Meanwhile, the Trade-Weighted Dollar Index has pulled back ~3.4% from its high on Jan20’16. It is hard to tell that long USD is a consensus trade because investors have lost their conviction.
The FX market is about to blow up in the Fed's face, and there's nothing they can do about it. What central banks fear most are markets that are not tightly controlled by central banks. The world's central banks are about to sit down to a banquet of consequences arising from seven long years of relentless manipulation.
Globally we calculate that earnings are currently falling in 29 of the largest 30 MSCI ACWI markets, with the sole exception being Switzerland. For DM this is the seventh earnings recession since the early 1970s. If it ends now it will tie for the least severe in percentage decline terms and win for being the shortest in months of duration of the last 45 years. The longest earnings recession was that which ran from August 1989 to June 1993 while the deepest was the 60% decline in earnings during the GFC.
The yen’s strength may be tripping up U.S. stocks as the collape of the BoJ-inspired carry trade pressures leverage and risk-taking around the world. As Bloomberg notes, in the last 10 instances the yen rallied at least 1 percent against the dollar, the Standard & Poor’s 500 Index lost 0.8 percent on average, the most since at least 2008.
Over time, Bubble Economies become increasingly vulnerable to economic stagnation, Credit degradation and asset price busts. Bubbles are fueled by Credit excesses that distort risk perceptions and resource allocation. Credit and asset price inflation will incentivize speculation, another key dynamic ensuring misallocation and malinvestment. In the end, Bubbles redistribute and destroy wealth. Major Bubbles will tear at the threads of society.
Since The Fed ended QE3, the world's FX markets have become increasingly turmoily as the loss of Janet's foot on the throat of volatility sends chaotic sprres through carry traders' P&L. In fact, after rising 6 days in a row amid Japanese Yen strength, Global FX rates are the most turbulent since January 2012.
With the Yen soaring (and USDJPY plunging) some 10% in 2016, in the process crushing the tightly correlated Nikkei and leading to such outcomes as the largest Asian clothes retailer slashing profits by a third in just 4 months due to the strong currency, everyone has been wondering i) why is the BOJ waiting to intervene when it had no problems unleashing NIRP when the USDJPY was about 1000 pips higher and ii) when will it intervene again?
It is not only BofA's "smart money" clients who have been selling the rally non-stop (and at an accelerating pace) for the past 10 weeks: so has the bank's chief investment strategist, Michael Hartnett, whose reluctance to embrace the mania has been duly documented on these pages.Below we lay out the reasons why he "remains a seller of risk."
- Stocks up as investors look to end bruising week on a high (Reuters)
- Treasuries Set for Two-Week Gain; Greenspan Warns of Global Risk (BBG)
- Yellen, alongside Fed alum, says rate hikes on track (Reuters)
- Oil Prices Lifted by Fed Comments on U.S. Economy (WSJ)
- China says G20 summit should be about economics, not politics (Reuters)
- Cameron Accused of Hypocrisy for Stake in Father's Offshore Fund (BBG)
In the final day of the week, it has again been a story of currencies and commodities setting stock prices, however instead of yesterday's Yen surge which slammed the USDJPY as low as 107.67 and led to a global tumble in equities, and crude slide, today has been a mirror imoage after a modest FX short squeeze, which sent the Yen pair as high as 109.1, before easing back to the 108.80 range. This, coupled with a 3.5% bounce in WTI, which is back up to $38.54 and up 4.9% on the week as speculation has returned that Russia and OPEC members can reach a production freeze deal on April 17, led to a global stock rebound which will see the S&P open back in the green for 2016.
It didn't take long for the impact of the stronger yen, and the weak global economy, to manifest themselves on the company that is Asia largest clothing retailer.
Mood swings have been fluctuating so quickly they resemble rapid-eye-movement rather than the expected ebb and flow of a normal market, such as it is in a QE world... With market noise at a cacophonous pitch, it’s far better to lean on technical pivots and to keep it really simple. In this environment a chart really is worth 1,000 words.